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Gold ETF Asset Flows are a New Market Indicator


Gold exchange traded funds witnessed large redemptions in the recent gold market collapse, and some argue that investors can track gold ETF inflows and outflows as a new market indicator.

So far this year, the largest gold ETF, SPDR Gold Shares (GLD) , has lost $14 billion in outflows. [Investors Pull $14 Billion from Gold ETF as Bull Market in Doubt]

“You watch the flow of money, and if there’s money flowing out of the ETFs, it’s going to negatively impact the price of gold,” Jim Wyckoff, senior analyst at precious-metals dealer Kitco Metals Inc, said in a Wall Street Journal article. “No matter what the supply-and-demand fundamentals [for physical gold] may suggest, if that money’s flowing, those prices are going to move.”

From January 1 through April 11, GLD’s holdings dipped 13% while the price of gold fell less than 6%. GLD’s gold holdings started to quickly decrease after April 12 as gold prices declined below $1,500 an ounce. [Gold, Silver ETFs Fall After Record Monthly Outflows]

“The overall gold market isn’t that big,” Eric Marshall, portfolio manager at mutual-fund manager Hodges Capital Management, said in the article. “So creating even a small amount of incremental demand through these ETFs, and making [gold] investible in a way it wasn’t previously, definitely does have an impact on prices. And I think that impact works to the downside just as it did to the upside a few years ago.”

According to the World Gold Council, around $236 billion worth of gold was purchased in 2012, with about 6% of total demand coming from ETFs. During the gold bull rally in 2009 and 2010, ETFs made up about 13% of total gold demand.

The World Gold Council, though, maintains that ETFs do not have a significant impact on gold prices.

“ETFs are a new, clever way for investors to access the gold market, but they’re not replacing or dominating investment, which is still dominated by bars and coins,” Jason Toussaint, chief executive of the council’s World Gold Trust Services unit, said in the article.

SPDR Gold Shares

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Max Chen contributed to this article.

Full disclosure: Tom Lydon’s clients own GLD.