Why Are Gold ETFs Losing Their Allure?

Gold’s trading price on Friday closed at $1,090.00. It hit a high of $1,093.00 and a low of $1,082.70. With declining gold prices, the most famous gold ETF, the SPDR Gold Shares ETF (GLD), has also lost its allure. It’s trading at lower volume. The fund’s last trading price was $104.39.

GLD has seen a year-to-date trading loss close to 8.06%. This loss is close to the fall we’ve seen in real gold holdings. The ETF’s holdings, in general, have fallen. The ETF’s current gold holdings declined to ~1,529 tonnes—the lowest mark they’ve seen in the past six years.

The declining demand for gold ETFs mostly relates to tumbling prices. Also, tentative rate hikes further affect gold, as it has no cash flows, unlike other interest-bearing assets. The chart below shows the ETF’s holdings since 2003.

As more and more investors turn bearish on gold, other precious metals have also seen a similar kind of disdain recently. Silver futures for September delivery on COMEX saw an up-day on Friday but lost 1.42% on a five-day trailing basis. Platinum futures for October delivery saw a down-day and closed at the mark of $956, down 0.89%. Palladium has been the most affected among precious metals. It has taken a hit close to 14.25% on a 30-day trailing basis.

Hedge funds have also taken a bet on declining gold prices for the first time on record. We’re currently seeing more bearish sentiment in the market for precious metals than bullish sentiment. The bearish sentiment has its roots in the stabilizing US economy. Rate hike speculation is likely fueling the bearish outlook.

Miners have suffered in the past few months. Mining companies like AngloGold Ashanti (AU), Agnico Eagle Mines (AEM), and Newcrest Mining (NCM) saw an up-day on August 6, 2015. The Global X Silver Miners ETF (SIL) lost close to 24.45% on a 30-day trailing basis, but it ended on a positive note on Friday, climbing 1.57%. AEM, NCM, and AU contribute significantly to the VanEck Vectors Gold Miners ETF (GDX).