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 tonnes 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," said 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 futures currently trade at around $1,590 an ounce.
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 FT 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): 0.40% expense ratio; $63.2 billion in assets under management; the fund is trading at a 0.01% bid/ask spread
- iShares Gold Trust (IAU): 0.25% expense ratio; $10.9 billion in assets under management; the fund is trading at a 0.06% bid/ask spread
- ETF Securities Swiss Gold Shares (SGOL): 0.39% expense ratio; $1.83 billion in assets under management; the fund is trading at a 0.29% bid/ask spread
- ETF Securities Asian Gold Shares (AGOL): 0.39% expense ratio; $78.8 million in assets under management; the fund has a 1.23% bid/ask spread; gold holdings are stored in Singapore vaults
Max Chen contributed to this article.
Full disclosure: Tom Lydon's clients own GLD.