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Gold ETFs Are Moving on Fundamentals After Panic Sell-Off


After a steep sell-off earlier this year, fund flow data suggests gold exchange traded funds are consolidating and shifting on fundamentals, with many short-term speculators sitting on the sidelines.

According to ETF Securities, gold exchange traded products, which includes ETFs and exchange traded notes, experienced outflows of $4.2 billion in the third quarter, significantly lower than the $19.6 billion in outflows recorded over the second quarter, reports Myra P. Saefong for MarketWatch.

Nick Brooks, head of global research and investment strategy at ETF Securities, argues that the “bulk of shorter-term tactical money that went into gold over 2011 and 2012 has now been cleared” and gold ETP assets are closer to 2010 levels.

The SPDR Gold Trust (GLD) was the least popular ETF in the third quarter, with $2.6 billion in outflows, according to IndexUniverse data. However, the decline in assets in the past three months was lower than the $11.6 billion in outflows over the second quarter. [Gold ETFs Pick Up After Touching Two-Month Low]

Adam Koos, president of Libertas Wealth Management Group, is “encouraged by the recent consolidation and potential bottoming in gold ETFs.”

“Where hope floats is in the short term, as gold ETFs have started consolidating — a potentially bottoming process — which began in July,” Koos said in the article. “We still have yet to see whether the break-out from here will be a bullish or bearish one.”

Koos explains that instead of focusing on technical indicators, people are more inclined to trade on fundamental factors like government debt, a weak U.S. dollar and an eventual rise in inflation. [iShares: The Bigger Threat Than a US Government Shutdown]

“The great majority of the investors today are long-term holders who own gold to hedge against growing U.S. and other developed-economy sovereign debt and currency-debasement risks,” Brooks added. “As those risks rise, we expect flows will rebound again.”

SPDR Gold Trust

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Max Chen contributed to this article.

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.