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Precious Metals: Why Did the Fund Flows Drop?

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Fund flows drop

The safe-haven bids for gold rose substantially after the Brexit vote took place at the end of June. Increased safe-haven bids got funds flowing to gold. In the following graph, you can see the growth in money flowing to the famous gold-based fund—the SPDR Gold Shares (GLD). GLD has seen an increase of ~26% YTD (year-to-date). However, the past month was slow for gold. It witnessed an ~2% loss. The money flowing to gold also diminished.

GLD reported a 6.5-ton outflow on August 8—the largest outflow in the past month.

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Diminished physical demand

With the sudden rebound in the price of gold after the Brexit vote, physical investors in gold were also shunned away. India, the biggest gold consumer, and China also slowed down their pace. Although physical buying has a little impact on the price of these metals, the prices impact the demand. The funds flowing to the other gold-based funds like the iShares Gold Trust (IAU) have also been slowing down. IAU has a seen a loss of about 1.9% during the past month.

Leveraged funds like the Direxion Daily Gold Miners (NUGT) and the silver-based ProShares Ultra Silver (AGQ) have seen a loss of 2.4% and 4.6%, respectively, on a 30-day trailing basis.

These two precious metals have been the best performing metals during the first quarter. However, their pace eventually slowed down. Over the past month, gold and silver were ranked at 16 and 22, respectively, on the S&P GSCI (Goldman Sachs Commodity Index). Silver is the best performing commodity, while gold is fourth YTD.

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