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Gold ETFs Safe-Haven Status Threatened by Rising Volatility

Gold has a reputation of being a safe-haven asset class and that reputation has buttressed in recent days as the SPDR Gold Shares (GLD) has posted a five-day gain of 1.5% while the S&P 500 has shed 2.8%.

Then again, gold’s safe-haven status is being betrayed by soaring volatility, a characteristic investors typically avoid when searching for asset classes perceived as safe. On Tuesday, the “Chicago Board Options Exchange Gold ETF Volatility Index, derived from options prices on GLD, reached the highest since November 2013,” reports Debarati Roy for Bloomberg.

Gold ETFs were wracked with outflows during the third quarter. During that quarter, GLD, the world’s largest ETF backed by physical holdings of gold, shed nearly $774 million in assets while investors pulled a combined $91 million from the iShares Gold Trust (IAU) and the ETFS Physical Swiss Gold Shares (NYSEArca: SGOL ) . [Dim Outlook for Gold ETFs]

However, that trend is abating in October as “more than $1 billion has been added to the value of global exchange-traded products backed by bullion this month,” according to Bloomberg. The Gold VIX for December, which measures volatility gold futures, hit 18.70 yesterday, up from 15.5 in mid-September, according to CME Group data.

Eurozone growth concerns helped support gold prices. For instance, factory output from the union declined in August and Germany’s ZEW institute did not rule out a recession in for the Eurozone’s largest economy.

Predictably, gold’s resurgence over the past several days has been accompanied by a pullback in the U.S. dollar. The PowerShares DB US Dollar Index Bullish Fund (UUP) is off 1.1% over the past five days, a drop that coincides with the beleaguered euro entering a favorable period of seasonality. [Euro Could Betray Seasonal Trends]

Ahead of the Indian festival Diwali, which arrives later this month, strategists see that seasonal factor as unlikely to boost gold demand despite depressed prices. That would mean another month of gold betraying a favorable seasonal catalyst. The yellow metal tumbled in September, which is usually the best month of the year for gold prices. India is the world’s second-largest gold consumer after China.

SPDR Gold Shares

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ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of GLD.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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