Gold Falls Amid ‘Steady, Large’ Outflows from Bullion ETFs

ETF Trends

Investors continue to pull cash from bullion-backed ETFs as gold prices decline and now Goldman Sachs is predicting that further outflows from exchange traded products will put even more pressure on the metal.

For example, SPDR Gold Shares (GLD) has seen net redemptions of about $7.7 billion year to date, the most for any U.S.-listed ETF, according to IndexUniverse.

GLD is the largest gold ETF with 1,200 metric tons of the precious metal and nearly $61 billion in assets under management.

Gold prices have fallen below $1,600 an ounce after topping out around $1,900 in 2011. Goldman Sachs commodity analysts are forecasting more weakness and advising clients to short gold.

“Given gold’s recent lackluster price action and our economists’ expectation that the acceleration in US growth later this year to above-trend pace will support US real rates, we are lowering our USD-denominated gold price forecast once again,” Goldman said, according to an FT Alphaville report.

“While there are risks for modest near-term upside to gold prices should US growth continue to slow down, we see risks to current prices as skewed to the downside as we move through 2013,” the analysts said.

“The other interesting thing they note, is that despite the resurgence in euro area risk aversion, it’s pretty notable (if not remarkable) that gold prices have remained unchanged over that period, something which is pretty visible on the ETF level,” FT Alphaville reports. “Indeed ETF gold holdings continue to decline quickly.”

Bullion holdings in gold ETFs fell about 7% during the first three months of 2013, a quarterly record.

ETFs have made it much easier to purchase gold without the costs of storing, transporting and insuring the metal. It’s difficult to quantify just how much the funds have contributed to gold historic rally but the recent outflows clearly signal the metal is falling out of favor with some ETF investors. [Do Record Quarterly Gold ETF Outflows Signal End of Rally?]

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Charts from FT Alphaville.

Full disclosure: Tom Lydon’s clients own GLD.

The opinions and forecasts expressed herein are solely those of John Spence, 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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