Looking for signs that inflation is finally taking a toll on people's wallets? The closure of 99 Cents Only Stores is one — but so is investors' newfound love of gold ETFs and the rising gold price.
Money has been flooding into gold ETFs in the past four weeks. Investors are searching for a store of value. More than $950 million flowed into the $7.4-billion-in-assets SPDR Gold Shares ETF in the past four weeks, says Kirsten Chang of Vetta Fi. Additionally, $350 million went into SPDR Gold MiniShares Trust.
And it's easy to understand the sudden interest. Shares of SPDR Gold are up 7.2% just in the past month, while the S&P 500 is down 3%. Gold prices are rising as inflation remains hot, prompting the Federal Reserve to hold interest rates steady as opposed to cutting them. Governments and individuals, too, are hoarding gold.
"Beyond just inflation concerns, gold is also riding a wave of optimism from robust retail buying from emerging markets like China and India, what's believed to be the peak of the federal funds rate and massive hoarding of gold reserves across global central banks at the fastest pace we've seen in years," Chang said.
Why The Gold Price ETF Rush?
Gold remains a popular option for investors who don't trust the stock market. The yellow metal still has the lowest correlation to the S&P 500 of any major asset class, Chang said.
"The most recent SSGA Gold ETF Impact Survey showed more millennials are actually embracing gold ETFs as their preferred risk diversifier, while some traditional investors might still opt for gold bullion itself," she said.
SPDR Gold Shares is the largest and most actively traded gold ETF. But most of the other gold ETFs are getting inflows, too.
But it's not simply inflation fueling gold's rise, World Gold Council's market strategist Joe Cavatoni said in a report.
"The market is finally beginning to appreciate the importance of central bank buying's contribution to gold demand, which had the highest first quarter on record," he said.
Additionally, over-the-counter gold investment, like Costco's gold bars, is strong, he said. This corner of the gold market saw 136 tons of demand in the first quarter – a sizable element of the global investment's 335-ton total, Cavatoni said.
Playing Gold Price ETFs
Investors must decide whether to buy ETFs that own gold or gold miners' shares. If you're looking for diversification, gold ETFs are best, Chang said.
Gold mining ETFs are less exposed to the price of gold. "Gold mining stocks usually underperform gold itself," said Nicolas Colas of DataTrek Research. "The only times the miners do better than the commodity are after a long period of low commodity prices or off a major equity market low. Neither is the case now. We strongly prefer the metal to the miners here."
What about going for bitcoin ETFs instead of gold? If you're looking for stability, gold still wins. "There's still a very low correlation between gold and bitcoin — historically, about 0.03 or so — with bitcoin being roughly nine times more volatile," Chang said. "The jury is still out on whether cryptocurrencies will gain widespread acceptance and representation among asset allocators."
And that's giving gold ETFs a chance to shine longer. "Upside potential remains in the ETF space ahead of looming ECB and Fed rate cuts, but may not materialize until later in the year," Cavatoni said.
Large Gold ETFs
| ETF | Ticker | Expense ratio | One-month change | Assets (billions) |
|---|---|---|---|---|
| SPDR Gold Shares | 0.40% | 7.2% | $62.4 | |
| SPDR Gold MiniShares Trust | 0.10% | 7.2% | 7.4 | |
| VanEck Junior Gold Miners | 0.52% | 13.6% | 4.8 | |
| abrdn Physical Gold Shares | 0.17% | 7.2% | 3.1 | |
| iShares Gold Trust Micro | 0.09% | 7.2% | 1.1 | |
| VanEck Merk Gold Trust | 0.25% | 7.2% | 0.9 | |
| iShares MSCI Global Gold Miners | 0.39% | 5.6% | 0.5 |
