While the broader stock market is at all-time highs, gold has tumbled from its peak above $1,920 an ounce in September 2011. Despite the dip, many believe the over decade-old bull market for gold is alive and well. Uncertainty in Europe, continued Fed stimulus, and threats to a domestic recovery like the sequester, all play to gold’s benefit.
Adding to the fundamentals, one of the big drivers pushing the gold bull market forward has been the rise of Exchange Traded Funds, or ETFs. In fact, the first ever gold ETF, the ETFS Physical Gold (GOLD.AX), began trading 10 years ago today in Australia.
The inspiration to launch a gold ETF came from “wine securities at the time…that gave you exposure to wine, and the idea was sort of based on that," says Will Rhind, managing director of ETF Securities --the company that created the first gold ETF. “The Australian Stock Exchange was looking for an exchange traded underlying for gold, because some banks wanted to do options on it.”
Since those modest beginnings, Rhind notes that the precious metals ETF market has skyrocketed, with the total market cap of all metal ETFs pushing somewhere in the range of $140 – $150 billion. The SPDR Gold Trust (GLD) alone has grown to become the second largest ETF with over $64 billion in assets.
With gold priced around $300 an ounce ten years ago, rising to $1600 today, ETFs have given more investors the opportunity to own the precious metal and enable this asset class to boom. In fact, Rhind believes that the two biggest changes in gold demand are “the democratization of the gold market, and the accessibility of gold to equity-based investors.”
Not only has demand remained for traditional investors as a hedge, but retail investors and fund managers are creating new forms of demand as they can now conveniently buy and sell the commodity on command.
Rhind expects another decade of growth for gold, as markets for precious metals tend to be big, cyclical multi-decade moves, and believes gold is right in the middle of one of these “broader, more secular trends for gold investing.”
- gold ETF