Outflow of Gold ETFs

Gold has been on an interesting ride the past few weeks. After a large slip it seemed gold had found a base of about $1460.00 per ounce. This week saw another slide in prices. Many experts are blaming Gold ETF’s (Electronic-traded funds) for this downturn.

Outflow of Gold ETFs

In the past few weeks, investors have taken billions of dollars out of ETF’s. The demand for electronic gold in the first quarter of 2013 is down tremendously from last year. Commodities expert Kevin Kerr of Kerr Trading International states…

“The ETF revolution set expectations very high and brought a lot of liquidity at first” to the commodity markets, said Kerr. “After all, the ETFs were much more palatable to the average equity investor who wanted to steer clear of futures or physical gold and silver… Unfortunately with that liquidity came many weak hands,” he said. “The recent plunge in gold prices forced many of the weak hands out of the market and key ETFs.”

Demand on the Rise for Physical Gold

This outpouring of electronic gold may be one of the reasons for the recent dip in prices, but the need for physical gold has a different story all together. A recent report by the World Gold Council reported a large increase in physical demand for the yellow metal.  Bar and coin sales rose this year by 22% in China, 52% in India and 43% in the United States. Furthermore, retailers all over the world have started raising premiums on gold due to this spike in demand.

Experts say this increase in physical demand has not reached a large enough level to offset the outpouring of ETF’s. Yet this does raise an interesting question – If gold prices are dropping and ETF investors are backing out, why are individuals purchasing so much physical gold?

Bargain Hunters and the Value of Tangible Gold

The recent drop in prices has caused a rush of bargain hunters who have been lying in wait for the past two to three years to get in on gold. Investors, buyers of jewelry and even coin collectors have all been taking advantage of lower prices in recent weeks.

Furthermore, there are still justifiable fears the economy may not be recovering for some time. Inflation continues and Federal Reserve is still printing money. When it comes down to it, paper assets are still just paper. Those who know the value of tangible gold have seen this as an opportune time to help protect themselves for the long term.

Resources: MarketWatch, MarketWatch