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Are Market Jitters Giving Way to Increased Gold ETF Holdings?

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Mar. 26 2018, Published 4:04 p.m. ET

Why tracking ETF holdings is important

One of the ways for investors to gauge the outlook for gold prices is to monitor flows into and out of gold ETFs. While outflows from gold ETFs led to a ~28% fall in gold prices in 2013, ETF inflows supported gold prices in 2016 and 2017. When sentiment turns, prices can easily go the other way, leading to a huge sell-off.

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ETF holdings on the rise

According to the World Gold Council (or WGC), physical gold held in the gold-backed ETFs fell by 5.1 million tons in February 2018 from the previous month. The ETF holdings in January had increased by 27.6 million tons, a gain of 5% year-over-year (or YoY). In February, as volatility in gold prices increased and prices weakened, ETF holdings dwindled.

In March, the situation seemed to have reversed once again. Jitters related to the equity markets, as well as lower gold prices, might be encouraging investors to pile into gold ETFs. On March 19, ETF inflows totaled 14.3 tons, which was their highest inflow since September 2017. According to brokerage SP Angel, “Worldwide holdings in exchange-traded investments jumped to 2,267 tonnes, the highest since May 2013.”

Expectations of a global trade war triggered by Trump’s import tariffs might also lead investors to seek a haven in gold.

ETF holdings and gold price

The SPDR Gold Shares ETF (GLD) and the iShares Gold Trust ETF (IAU) have risen almost 1% this month. Concerns regarding equity markets, trade war fears, and weaker US dollar could be key factors for gold’s recovery.

Further recovery in prices would support stock prices for gold companies such as Barrick Gold (ABX), AngloGold Ashanti (AU), B2Gold (BTG), and Yamana Gold (AUY). Collectively, these four stocks form 13.7% of the VanEck Vectors Gold Miners ETF (GDX).

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