Gold Flows Away From Investors In Third Quarter, As Major Gold ETF Drags Down Commodities Amid Choppy Gold Market

Gold held in investment vehicles known as exchange-traded funds (ETFs) saw major losses in September and the third quarter, according to top fund flow tracker IndexUniverse.

Fresh IndexUniverse data emailed to International Business Times on Wednesday noted that the SPDR Gold Trust (NYSEARCA:GLD), the world’s largest holder of paper gold securities, was the least popular ETF in the third quarter, bleeding $2.55 billion of assets in the period.

“The redemptions side of the flows story last month and last quarter was largely a tale about commodities, gold in particular,” said a fund flow report from Tuesday.

“The asset class bled $1.67 billion in the third quarter, largely because of massive redemptions in the SPDR Gold Trust, which bled $2.55 billion in assets,” continued the report.

The next worst "top losers," managed by the world’s largest asset manager BlackRock, Inc. (NYSE:BLK), saw far less activity in inflows and outflows, as gold investors scrambled to hold favorable positions throughout the quarter, amid fears over Federal Reserve tapering.

The major gold trust saw $77 billion change hands over the quarter, compared to $16 billion and $5 billion, respectively, of turnover in the BlackRock funds.

The GLD trust ended 2012 with more than $70 billion in assets, but is now down to just over half that, ending September with $38.6 billion.

But the fund’s managers are maintaining a brave face despite the outflows and volatility.

“Concerns over U.S. budget talks, the Federal Reserve policy and a possible government shutdown, is bringing a lot of uncertainty to the market,” said Kevin Quigg, a strategist for the gold trust, in a statement last week.

Gold’s character as a hedge against these economic risks meant investors are “re-engaging with GLD as a longer term holding,” he continued.

“Gold is on track to generating a greater return than other equities that have declined and we are seeing this with GLD,” said Quigg.

The data comes as gold plunged sharply at the onset of the U.S. government shutdown on Tuesday, dropping over $40/oz, or more than 2 percent, in a single day of trading.

That’s the largest loss in one day, since a day after tapering was delayed by the Federal Reserve. Back then, casual remarks by Federal Reserve board member James Bullard on Sept. 20 unnerved gold bears and dropped prices by $50/oz.

“While we did not detect a ”smoking gun” behind this decline, there was market chatter that it may have stemmed from a large sell-order from portfolio rebalancing out of gold,” wrote HSBC Holdings PLC (LON:HSBA) gold analysts in a note on Tuesday.

“We believe the decline may also be attributed to disappointing liquidations from investors who expected prices to rally after news of the U.S. government shutdown.”

Gold rose again above the key psychological threshold of $1,300/oz on Wednesday, however, after job creation data disappointed markets and came in lower than analyst expectations.

Gold prices are expected to be extremely sensitive to U.S. economic data releases in the next few weeks, as those indicators are taken as tea leaves for when the Federal Reserve will actually start scaling back its $85 billion monthly bond purchases.

A government shutdown will probably need to last at least a week before gold prices are significantly buoyed by political uncertainty.