Gold ETF Rides Chaos To New Records

by on May 10, 2010 | ETFs Mentioned:

As fear crept into financial markets last week, nearly every corner of the global equity market entered into a freefall. With some ETFs plunging by more than 20% between Tuesday and Friday, identifying winners–outside of inverse ETFs–was a challenging task. ETNs linked to volatility indexes enjoyed a big jump, as did any fund that establishes a sort position in the euro (see Three ETFs For Euro/Dollar Parity). With uncertainty running high, the popular safe haven of gold also got a nice boost last week as well.

The SPDR Gold Trust (GLD) finished last week up about 2.5%, putting it well ahead of most equity ETFs. The flight to safe havens also translated into more creation activity for precious metals ETFs; following four tumultuous days, assets in the SPDR Gold Trust stood at about $45.2 billion, up from about $43.9 billion at the end of April. On Thursday, GLD added approximately 20 tons of bullion holdings, the biggest one day increase since February 2009. GLD has now added about 50 tons on the year, and as of May 7 holdings stood at a record 1,199.498 tons. At that level, the popular gold ETF is among the largest holders of gold bullion in the world; only the U.S., Germany, Italy, France, and the IMF have larger reserves.

GLD wasn’t the only gold ETF seeing a surge in interest. The iShares COMEX Gold Trust (IAU) now has about $3.1 billion in assets, and several futures-based gold ETFs have seen spikes in cash flows and trading volumes as well (for a complete breakdown of all the gold ETF options, see this Guide To Gold ETF Investing).

Room To Run?

Gold finished last week about $20 below the all-time high of $1,226.10 an ounce touched in early December. And a surge in equity markets on Monday did little to soften demand for the traditional safe haven, a sign some analysts see as a bullish indicator. With euro-denominated assets (including government debt) falling out of favor with investors, safe havens are in short supply. Although some analysts see waning investment demand as a drag on precious metals prices, others see a period of consolidation around $1,200 an ounce before moving higher.

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Disclosure: No positions at time of writing.