A dismal jobs report from the U.S. Department of Labor has
changed gold's fortunes in financial markets-both in terms of asset
flows and price-ending a period of the yellow metal's relegation to
second-class status as a safe haven behind dollar assets such as
The May jobs report showing 69,000 new jobs were created last
month was well below expectations of 175,000 in a Bloomberg News
analyst survey-getting everyone talking that the economy might need
more help from policymakers, lest the eurozone's debt problems
completely derail global growth. An uptick in the unemployment rate
to 8.2 percent from 8.1 percent added to pessimism.
The SPDR Gold Shares (NYSEArca:GLD), the world's biggest
physical bullion ETF, has been hauling in assets again-$187.1
million since the start of June, according to IndexUniverse's Fund
That's a stark reversal from the $397.1 million in GLD
redemptions last month, when bond funds carried the day amid angst
about Europe. On May 22 alone, GLD lost $891 million-a huge move
that got some analysts thinking that the decade-long gold rally
might actually be running its course. Not so quick.
The changing flows picture for GLD have echoed its price
movement, with month-to-date gains on GLD at more than 3 percent,
after the ETF's price tumbled 6.34 percent last month, according to
data compiled by IndexUniverse.
As a comparison, the iShares Barclays 7-10 Year Treasury Bond
Fund (NYSEArca:IEF) rose more than 3 percent last month, and the
fund is down almost 0.5 percent in the past five trading
Last week, yields on 10-year debt reached record lows below 1.5
QE3 Now On The Table?
The biggest reason for gold's shifting fortunes is that any move
by the Federal Reserve to pump more money into the financial system
to keep it afloat is likely to cheapen the dollar and make
commodities in general-and not just gold-more expensive.
That's because gold and oil and a host of other commodities are
priced in dollars.
If the Fed implements a third round of "quantitative easing" or
QE-bond buying aimed at pinning yields down to encourage
job-creating borrowing-it's almost a given that U.S. crude oil
prices will again top $100 a barrel. For now, they remain well
below $90, providing relief for U.S. motorists.
As for gold's price, it's hard to say.
But some end-of-the-world-as-we-know-it voices in the
markets-notably Marc Faber's or Peter Schiff's-say gold will at
some point reach new records above the high around $1,900/troy
ounce set last summer after the Fed ramps QE again, which to Faber
and Schiff is a given.
And IAU Too
GLD isn't the only gold ETF benefiting from the potential of
The iShares Gold Trust (NYSEArca:IAU) has seen inflows this
month through June 5 of $57.9 million, after suffering outflows of
$198.7 million in May, according to data compiled by
IAU, at $9.15 billion, is much smaller than GLD, which ended
yesterday's trading session with $67.75 billion in assets.
That said, IAU is the cheaper of the two bullion funds, with a
0.25 percent annual expense ratio compared to GLD's 0.40
But for short-term holders, that price advantage may make less
of a difference, since IAU's per-share price is so much lower than
In other words, investors buying or selling a fixed amount of
either gold ETF would end up paying more in per-share bid/ask
spreads by choosing IAU, since IAU costs $15.78 per share and GLD
has a share price of $157.21.
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