Gold ETF Outperform Futures, Analysts Expecting More Demand Post-Brexit

Monday June 27, 2016 10:59

(Kitco News) - Gold-backed exchange traded products were one of the only bright spots last week, once again seeing unprecedented demand as markets were roiled on the surprise support by UK voters to exit from the European Union.

Looking at the price action Friday, the world’s largest gold-backed ETP, SPRD Gold Shares (NYSEARC: GLD), outperformed the futures market as reserves grew at their fastest pace since February.

Investor demand caused GLD prices to rally 4.9% during Friday’s session, slightly higher than August Comex gold futures, which ended the session up 4.6%. Reserve data, compiled by GLD, shows that the ETF saw inflows of 18.41 tonnes.

Since the start of the month GLD has seen inflows in 10 of the last 11 days as reserves have grown by 63.57 tonnes. Year-to-date, reserves are up 934.31 tonnes, its highest level since July 2013.

Analysts are not expecting ETF demand to abate any time soon.

"Though the current composition of gold ETF investors is more balanced today between long-term holders and short-term return-chasers versus 2011-12, we expect more of the retail and institutional 'hot money' to look for exposure on the back of heightened European political risk, prompting further ETF inflows,” said analysts from Citigroup.

While GLD was one of the biggest beneficiaries Friday, it was not the only gold product to see strong demand. ETF Securities announced that its gold-investment product, ETFS Physical Swiss Gold Shares (NYSEARCA: SGOL), surpassed the $1 billion in assets Friday.

The firm also reiterated that they see gold’s fair value at $1,400 an ounce by the end of the year.

“We expect sentiment towards gold to remain buoyant during this extended period of uncertainty,” said James Butterfill, head of research and investment strategy at ETF Securities. “We believe investors are buying gold as an insurance asset, a hedge against tail-risks and spikes in volatility that seem increasingly likely against the backdrop of geopolitical tensions and anti-establishment sentiments in the political arena.”

By Neils Christensen of Kitco News; nchristensen@kitco.com

Follow @Neils_C