Gold ETFs can weather latest turmoil as speculative selling eases, say providers

The number of shares held by investors within the SPDR Gold Trust ETF took a dive following the sharp fall in the price of gold in the middle of April, but other ETF providers have reported positive performance since the fall and say long-term investors have not been panicked into selling their gold holdings.

The price of gold plummeted 15% to a low of $1,322 an ounce on April 15 and the number of shares outstanding in the SPDR Gold Trust ETF fell from around 450 million at the end of March to 363 million on April 26.

A report from ETF Securities claims that outflows from exchange-traded products (ETPs) linked to gold have continued into this week, despite a surge in demand for the physical metal in the form of gold coins and bars. Investors withdrew $157 million from gold ETPs in the week ending April 27, bringing the monthly outflow to $419 million.

Exchange-traded notes (ETNs) were not immune, with the Credit Suisse Gold Shares Covered Call price diving to just under $16,500 following the crash, after fluctuating between $19,000 and $19,500 for the previous three months. The note has since begun to recover gradually, and levels are currently at around $17,600.

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The continued outflows in gold ETFs globally have led Goldman Sachs to predict that the price of the precious metal will continue to fall.

Following the sharp fall in the gold price, ETF provider Source saw some selling of gold products, but inflows have since brought them back to roughly the same level as the previous month, according to Source data. The April 24 European Weekly ETF Market Review from Deutsche Bank shows that Source’s Physical Gold ETC [exchange-traded commodity] had the biggest inflows of all ETCs that week, at €81.7 million ($106.8 million). Outstanding shares on April 23 stood at just below 21.74 million compared to more than 21.76 million on March 22. The ETFS Daily Leveraged Gold and ETFS Daily Short Gold funds, both from ETF Securities, also appeared in Deutsche’s top 10 list of ETCs with the biggest inflows.

“We’ve found our holders are resilient, partly because they’re longer-term investors – predominantly asset managers, private banks and private wealth, so they’re not actively trading their positions,” says Michael John Lytle, chief development officer at Source in London. “They’ve made longer-term allocations to gold of, say, 2% or 3%, and they may adjust within that range but they haven’t seemed to change their perspective on gold exposure. The recent price movements have not convinced anybody to change direction.”

Lytle adds that the SPDR Gold Trust ETF is used much more actively as a trading and hedging tool, which might explain why it lost so many shares outstanding in April. “Our products are more the focus of long-term, buy-and-hold investors who are making strategic investments,” he says.

Gold ETC inflows are dwarfed by the outflows reported by Deutsche Bank on April 24, however, with five gold products appearing in the 10 ETCs with the highest outflows during the preceding week. The ZKB Gold ETF, issued by Zuercher Kantonalbank, saw outflows of €104.8 million ($137 million) by April 24

Following the crash in the middle of April, Goldman Sachs initially announced it was trading short on gold, but the bank then withdrew its advice from two weeks ago to short Comex gold after the price climbed back above $1,400 an ounce. But the US bank’s outlook is also bearish – a research note from April 23 states: “Our bias is to expect further declines in gold prices on the combination of continued ETF outflows as conviction in holding gold continues to wane as well as our economists’ forecast for a reacceleration in US growth later this year.”

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