Do GLD ETF gold inflows suggest a positive sentiment change?

After outflows of 66.6 tonnes over the whole of 2015 – admittedly encompassing some sharp ups and downs before reaching the year end – the SPDR Gold Trust ETF (GLD), the world’s largest gold ETF, has already clawed back around one third of this in the first three weeks of the current year.  At the end of last week the total gold holding in GLD stood at 664.2 tonnes, a rise of 21.8 tonnes over the three week period.

While this is still only around half the peak holding of 1,351.5 tonnes reached back in 2012, it does demonstrate that perhaps gold is indeed coming back into favour as a safe haven asset.  This has been due to the relatively steady gold price performance post-Fed rate rise last month (when most analysts seemed to expect gold to fall sharply) coupled with some severe nervousness over the performance of general equities markets so far this year.  In the U.S. for example, the S&P 500 is actually down over 5% year to date – and this despite a fairly decent day’s pick up on Friday.  Overall it is down over 10.6% from last year’s peak achieved in May.

Graph:  S&P 500 over past year (Courtesy www.kitco.com)

 

As can be seen from the above chart there was something of a similar fall back in August last year when the initial Chinese stock market crash sent waves through Western bourses, and from which the S&P 500 did make a strong recovery.  This time around, triggered again by Chinese markets and lower growth, many market commentators are more circumspect over equities market prospects going forward.  In the U.S., which tends to set the direction of global markets, some poor corporate earnings figures for the second half of last year are becoming apparent and the supposed U.S. economic recovery does not appear to be as strong as the Fed and politicians would have the general public believe. Indeed there are a good number of analysts predicting recession and a possible equities bear market ahead.  Some are forecasting an even bigger crash than in 2008.

While three weeks is obviously too soon to make any serious predictions as to whether things will get better or worse over the course of the year, it does perhaps indicate some potential light at the end of the tunnel for long suffering gold investors.  Everything tends to revolve around sentiment.  Gold has been totally out of favour with investors as equities had seemed to be following an ever-upwards path, and there is now just the indication at least that things could possibly be turning around in this respect. 

It’s a dangerous world out there – arguably more dangerous this year than last both in terms of the global economy and geopolitics.  And in times of potential financial and political stress, history shows that people turn to gold for protection against the situation worsening.  It’s financial insurance – not necessarily an asset for making vast amounts of money but more for wealth protection by performing more steadily when everything else is crashing.  In the East that is the way it is regarded hence the ever strengthening flow in that direction in line with middle class population growth.  In the West maybe we have lost much of that understanding of the basic rationale of holding gold as something of a monetary constant.  This aspect has been lost in the pursuit only of ever growing one’s wealth.  Perhaps now is the time for a rethink.

23 Jan 2016

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

e: lawrie.williams@sharpspixley.com