by Peter Schiff, Schiff Gold:
The world’s largest gold ETF saw record inflows on Friday, a bullish sign for the yellow metal.
SPDR Gold Shares (GLD) ranks as the world’s largest gold fund. It saw a net inflow of $1.63 billion on Friday. It was the largest net inflow in dollar terms since the fund was listed in 2004.
In tonnage terms, Friday’s net inflow came in at 27.6 tons.
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Bloomberg called it “a very bullish sign from investors who are returning to the precious metal in a big way.”
Investors flocked to gold as they pivoted out of riskier momentum stocks that have seen big gains as the Federal Reserve inflated a massive stock market bubble.
Gold has seen some renewed strength since the beginning of the year despite anticipation of the Fed tightening monetary policy to deal with inflation. Rising interest rates generally create headwinds for gold. But perhaps investors are finally starting to consider real interest rates. Real interest rates equal the nominal rate (the numbers quoted on the news) minus inflation.
If you accept a 7% inflation (even though the actual rate of inflation is probably 15% if the government measured it accurately) that means the dollar is losing 7% of its purchasing power every year. In exchange for that, you’re going to be able to earn maybe 2% in interest to offset the 7% you’re losing to inflation. You are still -5%. As Peter Schiff said in a recent video, that is not negative for gold.
Negative 5% is not an opportunity cost. Nobody wants the opportunity to lose 5%. So, if you’re giving up a 5% loss, you’ve given up nothing.”
Inflows of gold into ETFs are significant in their effect on the world gold market, pushing overall demand higher.
ETFs are backed by physical gold held by the issuer and are traded on the market like stocks. They allow investors to play gold without having to buy full ounces of gold at spot price. Since their purchase is just a number in a computer, they can trade their investment into another stock or cash pretty much whenever they want, even multiple times on the same day. Many speculative investors appreciate this liquidity.
There are good reasons to invest in ETFs, but they aren’t a substitute for owning physical metal. In an overall investment strategy, SchiffGold recommends buying gold bullion first.
When considering gold-backed ETFs, you should always keep in mind that you don’t actually own the gold. Buying the most common ETFs does not entitle you to any actual amount of the precious metal.