What Gold ETFs, Money Managers’ Positioning Say about Gold Prices



Precious metal ETF holdings

ETFs form a significant portion of the overall gold investment demand. Outflows from ETFs led to a ~28% fall in gold prices in 2013. That’s the equivalent of selling 881 tons of gold.

The demand by gold ETFs act as a significant demand driver and adds momentum to the already strong or weak sentiment for the precious metal. For this reason, investors should track any sustained or significant buying or selling activities by these ETFs.

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Global gold ETF holdings rise

Gold-based ETFs have started seeing inflows after three years of selling pressure. As of February 12, 2016, known gold holdings equaled 1,592.3 tons. This is an increase of 9% year-to-date (or YTD).

The largest physical gold ETF, the SPDR Gold Shares ETF (GLD) has also seen a 14% gain YTD. The strengthening of these ETF balances is a positive sign for the underlying demand of precious metals.

Money managers add to long positions

In addition, hedge fund managers’ positions also show that the long positions are moving up while short positions are moving down drastically. According to the disaggregated Commitment of Traders (or COT) report for the week ended February 9, 2016, money managers have increased their long positions in gold to 121,059 contracts while short positions fell by 11,107 contracts. Money managers are repositioning in the face of growing recession fears, a weaker dollar, and negative bond yields.

Please read Position of Gold Futures: Is a Gold Price Rebound Near? to learn more about the COT report.

Implications for investors

Because ETFs are large holders of physical gold and silver, and since the market tends to follow money managers, the recent bullish sentiment might be a further near-term positive for gold prices. As a result, this might positively affect precious metal prices and stocks like Sibanye Gold (SBGL), B2Gold (BTG), Hecla Mining (HL), and Silver Wheaton (SLW). This is also positive for the VanEck Vectors Gold Miners ETF (GDX). Silver Wheaton accounts for 4.80% of GDX’s holdings.

In the next part, we’ll explore the supply-side dynamics for gold and its potential impact on gold prices.


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