Despite the fact that the gold spot price seems to have found support above the $1300 benchmark, derivatives instruments have seen substantial outflows lately. While that may come as a surprise to some, what’s even more uncanny is that neither gold pundits nor the big-wigs who run the derivatives companies seem to know why this phenomenon is occurring.
There were more outflows from gold investment funds in October than in August and September combined, according to Barclays. A total of 48 tons of liquidations from gold-backed exchange-traded products took place in October, with a total of 752 tons of outflows occurring so far in 2013.
With gold able to stay atop $1300 per ounce for the last few weeks many thought that all types of gold investment vehicles would see renewed interest, but the majority of buyers seem to be more interested in physical gold than in paper that is supposedly backed by gold.
Investors are looking for safety, and since the price of gold is volatile it doesn’t make much sense to purchase the paper version of a hard asset if safety is your primary motive. What do those in charge of exchange-traded funds, like GLD, have to say about the discrepancy between gold’s rising value and the fund’s lower demand?
Some executives from the World Gold Council, the group that helps oversee GLD, commented that outflows don’t always give the full story of what is happening with gold. “You can’t look just at flows and extrapolate from that, necessarily, that investors are selling,” said council investment director Kevin Feldman last week.
Okay, Mr. Feldman, if you say so.
There are buyers and sellers in the gold market right now, but with outflows from ETFs increasing and gold staying above $1300 per ounce, it is as clear as day what is happening: investors are willing to sacrifice immediate profits for long-term security.