Gold ETF Grabs Spotlight as Bullion Falls Below US$1,200/oz

SGX Research
  • SGX-listed SPDR® Gold Shares ETF saw a spike in trading activity in August with a total turnover of S$115 million, the highest since November 2016, as gold prices fell below US$1,200/oz.
  • Gold prices fell to a low of US$1160.39/oz on 16 August according to data from Bloomberg, before recovering to the US$1,200 level towards end of August. The metal closed the week at US$1,196.93/oz last Friday.
  • Bullion prices have been under pressure for most of this year due to rising interest rates, global trade tensions and an emerging market currency crisis, which have spurred risk-averse investors to take refuge in the US dollar rather than gold.

SPDR® Gold Shares ETF had S$115 million record turnover in August

SPDR® Gold Shares saw a spike in trading activity in August with a total traded value of S$115 million, the highest since November 2016, as gold prices fell below US$1,200/oz.

Amongst the 52 ETFs listed on SGX, SPDR® Gold Shares was the second-most active ETF in the August by turnover, behind the iShares MSCI India Index ETF, which registered a turnover of S$170 million.

The spike in activity in SPDR® Gold Shares also contributed to a record turnover in the ETF segment on SGX, with a total of S$379 million traded across all ETFs listed on SGX in August, the highest since November 2016.

SPDR@Gold Shares Turnover

 Source: SGX

The SPDR Gold Shares (Stock Code: O87) ETF offers investors a means of participating in the bullion market without the necessity of taking physical delivery of gold, and allows them to buy and sell the ETF continuously throughout the trading day on the exchange at prices established by the market.

SPDR® Gold Shares is classified as Excluded Investment Product (EIP) and approved under CPFIS. Other than the first S$20,000 in Ordinary Account which cannot be used for investment, investors are allowed to invest up to 10% of investible Ordinary Account money in SPDR® Gold Shares. Click here for more on the ETF.

Gold prices under pressure for most of this year 

The SPDR® Gold Shares has  registered a 2018 year-to-date return of -7.6%, in line with the slide in gold prices, which have declined 8.1% in the year-to-date. SPDR® Gold Shares generated an annual total return of 11.4% in 2017.

Gold prices have been under pressure for most of this year due to rising interest rates, global trade tensions and an emerging market currency crisis, which have spurred risk-averse investors to take refuge in the US dollar rather than gold.

Gold prices sank to a low of US$1,160.39/oz on 16 August according to data from Bloomberg, before recovering to the US$1,200 level towards end of August. Gold closed for the week at US$1,196.93/oz last Friday.

Spot Gold & SPDR@Gold Shares

 Source: Bloomberg (data as of 7 Sep 2018)

The factors that influence gold can be grouped into four themes:

  • Currencies – strength and weakness of the US dollar and various currencies
  • Economic growth and market uncertainty – inflation, interest rates, income growth, consumer confidence
  • Tactical flows – price momentum, derivatives positioning
  • Additional gold demand and supply dynamics – mine production, idiosyncratic demand-side shocks

Gold price is closely tied to the US dollar strength or US dollar weakness. As mentioned in a Market Update published earlier this year (click here), the 3-year correlation of weekly returns in USD terms between Gold and US Dollar Index is -0.45. In 2017, the US Dollar Index fell by 10.4%, in tandem with gold’s positive returns. Over the last few months, US dollar strength has prevailed and played a major role in keeping gold prices under pressure.