Wall Street seems to have gone cold on gold exchange-traded funds.
ETF investors investors dumped the most volume of gold since 2013 over the six months through March 31. It was no small quantity. The total sold amounted to a whopping 307.8 metric tons worth $17.5 billion at recent prices, according to a recent report from industry group World Gold Council.
The sales coincided with a drop in the net price for the metal and come after nine half-year periods where ETFs added gold to their holdings. Bullion fetched an average of $1,794 a troy ounce in the first quarter compared to $1,874 in the final quarter of 2020. Recently, you could buy an ounce of the yellow metal for around $1,764. In other words, bullion prices are sliding. The SPDR Gold Shares ETF, which holds bars of solid bullion, performed in a similar manner over the period.
8 Years Since Gold ETF Sales Were Near-As-Large
Stock investors might think the recent sales frenzy is a trivial total in dollar terms. But for the gold market it is a big deal. To find a larger sale over any six month period you you need to go back all the way to period were in 2013, according to my analysis of WGC data. Sales in the half year through September 2013 totaled 520.4 tons.
The news also comes as the global economy in general, and the U.S. economy in particular rebounds following the ravages of the COVID-19 pandemic which kicked off in earnest in early 2020.
Booming Economy, Bust for Gold?
Now the U.S. is expected to grow 6.4% this year and expand a further 3.2% the following year, according to a recent forecast by economists surveyed by The Wall Street Journal.
For the richest economy in the world that’s gangbuster growth. Pre-pandemic growth levels for the U.S. economy hovered between 1.5% and 3%, according to data from website Trading Economics.
Those super forecasts get to the center of why investors buy gold. They purchase it when they are worried, not when they are exuberant.
They often use the metal as a hedge when they are uncertain of the future value of financial assets of stocks and bonds. That was certainly the cast during the height of the pandemic.
However, the recent upsurge in the economy means that stocks are now far more attractive compared to metal as corporate earnings keep growing apace.
Other reasons to hold gold in a portfolio are as a hedge against future inflation — and that may be something that triggers significant future buying of the metal. When or if that happens remains to be seen, but when it does, you’ll you’ll get the skinny here.
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