Gold provoking investment duality
GOLD is splitting the investment community down the middle.
Take the flows into and out of exchange-traded funds.
Money’s been draining out of SPDR Gold Shares, the world’s largest gold-backed ETF used by big institutional investors, each week since November 11.
But iShares Gold Trust, a smaller rival favoured by individuals investing lesser amounts for themselves, has seen back-to-back weekly inflows.
Large mutual, pension and hedge funds are chasing better returns in rallying US stock markets thanks to President-elect Donald Trump’s pro-growth policies.
Retail investors including iShares Gold holders are returning to gold amid renewed concern that Trump protectionism will restrict global trade and growth.
Those concerns were shared by more than two-thirds of traders surveyed by Bloomberg News last month, who forecast prices would rally this year as political uncertainties drive demand for haven assets including bullion.
Gold futures gained 1 percent to settle at $1 184.90 (R16 237.87) an ounce on the Comex in New York on Monday.
Prices have risen 5.4 percent since hitting a 10-month low on December 15. People familiar with China’s plans said last week the nation is prepared to retaliate should Trump take punitive measures against Chinese goods and trigger a trade war between the two biggest economies.
Last week, investors pulled $307.1 million from SPDR Gold, while iShares attracted $80.8m, according to data compiled by Bloomberg.
“It looks like the hot money is showing a real negative sentiment towards gold and it’s expressing that in GLD,” Eric Balchunas, an ETF analyst for Bloomberg Intelligence, said, referring to SPDR Gold by its exchange ticker.
“Retail investors and advisers seem to be continuing their allocation to gold through these other vehicles,” including iShares Gold, he said.
Former US Treasury secretary Lawrence Summers last week said investors were far too sanguine about the risks of Trump’s policies, which analysts at Eurasia Group said could contribute to a level of global instability not seen since World War II.
Summers also said Trump’s plans for deregulation were setting the stage for the next financial crisis.
Gold may rally to $1 300 at the end of 2017, according to the median of the 26 estimates by analysts and traders surveyed by Bloomberg News last year from Singapore to New York.
While the uncertainties are sending retail investors and overseas buyers to the gold market, institutional investors are unloading their bullion in favour of higher returns in US equities, as the Dow Jones Industrial Average hovers near 20 000.
Last week, $15 billion poured into equity ETFs, as $106 million was withdrawn from funds backed by precious metals, data compiled by Bloomberg show. Equities have rallied since Trump’s election amid expectations of accelerating economic growth.