SGOL Abrdn Physical Gold Shares ETF

Since the beginning of the year, gold has been moving deep into negative territory, plunging 26% so far. Gold has broken its major support level of $1250 per ounce, suggesting a bearish outlook for the yellow metal. This marks the biggest annual decline in more than three decades (read: 4 Ways to Short Gold with ETFs).

Reasons for Decline

Gold gained immense popularity over the past twelve years, but now that a QE3 exit appears to be on the horizon, it could be a game changer for bullion. The worries over the early end of the Fed’s stimulus program as a result of an improving economy is keeping the metal under pressure, tempering its safe haven appeal.

A few major firms like Morgan Stanley, Credit Suisse and Goldman Sachs slashed their gold forecasts for this year and the next on the bearish outlook. Strong dollar and fears of a cash crunch in China are also adding to the woes.

Slowdowns in India and China, the two major customers of gold, is also hurting demand for the metal. Additionally, increased import duties and government efforts to reduce gold imports in India are also dulling the prospects of gold holdings (read: Will India ETFs Continue to Plunge?).

Apart from this, the central banks are now unable to increase their holdings in gold reserves due to lower account balances in many emerging nations.

QE3 Exit: A Game Changer for Gold ETFs

Gold ETFs are bearing the brunt of the sharp gold sell-off over the past several months on concerns of the Fed tapering its stimulus (read: Precious Metal ETFs Crumble in Fed Meeting Aftermath).

The ultra-popular SPDR Gold Trust ETF (GLD) has seen the worst outflow since its launch in Nov 2004. The ETF bled a net of $17.5 billion in assets so far this year, lowering its total base to around $40.8 billion.

GLD tracks almost 100% the physical price of gold bullion measured in U.S. dollars, and kept in London under the custody of HSBC Bank USA. The fund lost about 23.5% in the year-to-date timeframe.

On the other hand, the second largest iShares Gold Trust (IAU) also saw a huge outflow of more than $1.6 billion. The product is backed by physical gold under the custody of JP Morgan Chase Bank in London. The ETF has delivered negative returns of nearly 23.5% so far this year. 

Generally, all the unleveraged products in the gold bullion space have tumbled with regards to both AUM and performance as shown in the table below (see more in the Zacks ETF Center): 

 

Gold ETF	AUM (in millions)	Year-To-Date Performance (as of June 25)
GLD	$40,765.20	-23.51%
IAU	$7,654.90	-23.53%
SGOL	$1,267.80	-23.84%
DGL	$174.90	-24.67%
AGOL	$63.70	-22.81%
UBG	$13.10	-24.47%

 

Gold ETF	AUM (in millions)	Type of Leverage	Year-To-Date Performance (as of June 25)
DGP	$196.83	2x	-43.71%
UGLD	$21.51	3x	-60.13%

It is clear that selling pressure has been intense for gold and that the recent trend is extremely troubling for investors given the dollar strength. Additional selling could be in the cards for the space if more taper talk hits the market, or if the Fed appears ready to act sooner rather than later on the QE front, so make sure to use extreme caution if you are thinking about treading into this rocky space (read: Gold Mining ETFs: The One Bright Spot in this Slump).

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ETFS-ASIAN GOLD (AGOL): ETF Research Reports
 
PWRSH-DB GOLD (DGL): ETF Research Reports
 
PWRSH-DB GD 2XL (DGP): ETF Research Reports
 
SPDR-GOLD TRUST (GLD): ETF Research Reports
 
ISHARS-GOLD TR (IAU): ETF Research Reports
 
ETFS-GOLD TRUST (SGOL): ETF Research Reports
 
E-TRC UBC GOLD (UBG): ETF Research Reports
 
VEL-3X LNG GOLD (UGLD): ETF Research Reports
 
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