SMM News: gold ETF (GLD.US) used to be the world's largest ETF, by market capitalization, but that seems to have been a long time ago.
In 2011, the global economy is still emerging from the financial crisis and people face familiar "new" enemies-sovereign debt risk and credit rating downgrades. S & P downgraded the U.S. credit rating in August 2011; the S & P 500's summer decline accelerated until early October.
Before that fairly severe correction, in which small-cap and emerging market stocks performed even worse, gold outperformed almost all other asset classes. For most of the third quarter of 2011, GLD grew by 30 per cent. If you look at gold's performance in the decade before it peaked in August 2011, it has basically risen in a straight line, except that gold was sold off along with other assets in 2008, down 30%.
At that time, there was nothing wrong with choosing gold. Investment advisers always hear instructions from different clients to hold gold as a long-term hedging tool. At the same time, analysts in the US media are also claiming that gold is an excellent asset because it is very "safe".
All in all, 2010-2011 was indeed the peak of the gold market.
However, the next few years will be very difficult for new gold investors. On the one hand, they were pained by the collapse in gold prices from $1920 an ounce to $1040 an ounce; on the other hand, US stocks performed remarkably well from October 2011 to early 2020. Although few investors point out that the S & P 500 almost fell below 1000 in the fall of 2011-three years after the nightmare of October 2008.
Now let's go back to 2020. The current market environment is like this: central banks have been expanding their balance sheets (the Fed's balance sheet has swelled to $7tn); the dollar has not changed much in recent years; and as for inflation, the risk of deflation now seems greater.
So do these factors mean that gold is preparing to move higher? The analysis points out that although these clues may suggest its direction, it is not very clear.
The most interesting thing about the gold market right now is that although spot gold has climbed from $1170 / oz to $1800 / oz in less than two years, ETF's share of the gold market is still near an all-time low.
The chart below shows that gold ETF peaked in the third quarter of 2011, close to 8 per cent of the total market capitalization of all ETF. Between 2018 and 2019, the market capitalization of gold ETF fell to 1 per cent, hitting an all-time low and only recently recovered to slightly more than 2 per cent.
Given that spot gold is now at its highest level since 2012, the popularity of gold ETF is still quite low compared with gold prices.
Of course, not all golden ETF are given the cold shoulder. The world's largest gold ETFSPDR Gold Shares (GLD), which tracks spot gold prices, was founded in 2004 with a fee of 0.40 per cent. Together with other gold ETF assets such as ETF, which tracks spot gold prices, total ETF assets reached $90 billion, close to post-2011 highs.
Thus it can be seen that the popularity of gold ETF has gradually rebounded, as long as the time is ripe, investors will enter this market one after another.
So when is the best time to invest in gold ETF? We might as well analyze it from the following dimensions.
In terms of the macro environment, deflation has been mentioned earlier. Real yields on 10-year Treasuries may also be falling, while gold is on track for a breakthrough. Something similar happened in the early 2000s, when gold prices soared from $250 an ounce in 2001. When gold starts to rise, it can be very fast. As a result, under the combined effect of these positive indicators, the inflow of gold has been increasing.
In addition, while capital inflows into gold are already strong, the share of implied allocation is still below historical levels. This tells us that more money may flow into gold ETF later.
Finally, Topdown Charts, a research firm, previously analyzed that there is another way to invest in gold-if gold mining stocks can catch up with the market trend, it is also an investment choice.
All in all, spot gold prices are nearing eight-year highs, while investors' share of gold ETF allocation is well below its peak in the early 2010s. The flow of money suggests that a lot of money is pouring into gold. The ETF-- story may be just beginning.
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