Gold ETFs See Record Cutback in Bullion Holdings

ETF Trends

Gold exchange traded funds have seen record outflows in assets under management with the funds themselves experiencing heavy reductions in physical bullion holdings.

Since the start of the year, gold ETFs have sold off 140 tones of gold, with February experiencing the largest monthly outflow of gold from ETFs on record, as investors become more confident in the global economy and shift money to riskier assets, reports Jack Farchy for the Financial Times.

“The acceleration in gold ETF outflows is worrying,” Joni Teves, precious metals strategist at UBS. Suki Cooper, an analyst at Barclays, said in the article, pointing to the current selling as “the key downside risk for prices.”

To put gold ETF holdings in perspective, collective ETF holdings outweigh all but U.S. and German central bank holdings. Gold held in ETF sponsor vaults could supply India’s jewelry market, the largest in the world, for over four years.

Gold ETFs lost a record $4.1 billion in assets under management over February. [Gold ETF Sees Over $5 Billion Outflow as Prices Slump]

Gold futures currently trade at around $1,590 an ounce. [Gold ETFs Suffer Largest Fall Since May 2012 on Dollar Strength]

In the previous large sell off over the final two months of 2011, gold prices dipped 13% but ETF holdings rose.

“The latest collapse in gold ETF holdings stands in sharp contrast to our assumption that ETF positions were likely driven by longer-term allocation rather than short-term trading,” Damien Courvalin, analyst at Goldman Sachs, said in the article.

Nevertheless, Nicholas Brooks, head of research at ETF Securities, believes that “there are still very strong core holders of gold ETPs [exchange-traded products] as a hedge against currency debasement and potentially unexpected inflation. Those guys are still there and they’re holding on.”

Some physically backed gold ETFs include:

  • SPDR Gold Shares (GLD)
  • iShares Gold Trust (IAU)
  • ETF Securities Swiss Gold Shares (SGOL)

For more information on gold, visit our gold category.

Max Chen contributed to this article.

Full disclosure: Tom Lydon’s clients own 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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