Now That Gold-Based Funds Have Rallied, Here Come the Inflows



ETF flows in 2016

The recent surge in gold prices of almost 20% has made investors keen on non-traditional ways of gold buying, particularly through ETF gold funds. Investors have increased their bets on gold because it has been a saviour amid the global slump that started at the beginning of 2016. Gold has outperformed the equities a big time and had maintained a close negative relation to the equities. The fall in shares often gave aid to the traditionally preferred form of investment.

After four straight years of withdrawal, investments in gold-backed funds have increased to almost 259 tons in the current quarter. Gold ETFs saw record-high inflows in the current year compared to the past eight years. Investors spent a whopping ~$7.8 billion in February 2016.

Gold-based funds like the SPDR Gold Shares (GLD) and the iShares Gold Trust (IAU) have gained about 18.8% and 18.9%, respectively, on a YTD (year-to-date) basis.

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Miners surge

Open interest in gold futures on COMEX has also rallied to its highest point since 2012. However, the recent CFTC (Commodity Futures Trading Commission) data showed that hedge funds and money managers have reduced their bullish bet on gold during the past week. This represents the first time since the beginning of 2016 that the bullish bets on gold have been reversed.

The money that is flowing into gold also helped miners gain some lost glory. Precious metal mining shares have surged substantially since January. AngloGold Ashanti (AU), Hecla Mining (HL), and Kinross Gold (KGC) have all increased by 82%, 40.7%, and 64.3%, respectively, on a YTD basis. The profit margins for these mining stocks likely expand with the rise in precious metals. These three companies make up 8.9% of the price changes in the VanEck Vectors Gold Miners ETF (GDX).


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