Cory's Insights – Thu 19 Nov, 2015
Funds are crucial for a rising gold price
This article from MarketWatch detailing the capital outflows out of GLD is not telling us anything new. However it is part of a bigger overall picture for the precious metals. While we talk about coin demand the fact is for a sustainably higher gold price the sector needs funds, including ETFs to start investing again.
Funds have huge books and only a small percentage (say 5 to 15%) would go a long way in these beat down markets. Since the peak in precious metals in 2011 there has been a stead outflow of capital – as can be seen in the chart below. The good news is the pace of outflows has slowed but when it turns is only a guessing game right now. Eventually sums of money will begin entering the gold sector which is why it is important to watch the sentiment towards the precious metals from a fund level.
How investors are abandoning gold, in one chart
Money in GLD falls to level last seen in January 2009
Gold has suffered a rough month, with prices dropping to levels last seen in February 2010.
You can see just how much the metal has fallen out of favor by looking at the investor money rushing out of the SPDR Gold ETF GLD, +0.95% a popular way to get exposure to gold.
The amount of money in GLD has dropped to its lowest level since January 2009, according to FactSet data. That’s shown in the chart below. Back then, the U.S. was in recession and U.S. stocks were still two months away from finding a bottom.
As the chart shows, the gold ETF didn’t see much inflow on Monday, when gold futures GCZ5, +1.09% marked their largest single-session gain in more than two weeks as investors bid up safety plays in the wake of the Paris terror attacks. GLD’s assets under management edged up to $23.08 billion on Monday from $23.01 billion last Friday, according to FactSet data.
Goldman Sachs analysts are among those sounding bearish lately on gold and other commodities, though they still see the “long-term strategic case” for holding commodities. On the other hand, one longtime mining fund manager has given four reasons why gold could jump this year.