For ages, gold has retained the appeal of a haven for investors, with the precious metal witnessing inflows, especially in moments of economic turmoil. Despite the metal’s position as an investment vehicle, notable gold exchange-traded funds (ETFs) have recorded a negative return on investment in 2021.
According to data acquired by Finbold, the top seven gold ETFs in the U.S. by the highest average daily trading volume have returned an average of -7.41% on a year-to-date basis as of October 18. SPDR Gold Shares (GLD), with 7.2 million daily traded shares, has the highest negative returns at 7.54%. Elsewhere, iShares Gold Trust (IAU), with the highest daily traded shares at 8.6 million among the selected ETFs, has returns of -7.24%.
Elsewhere, SPDR Gold MiniShares Trust (GLDM) has returns of -7.44%. Goldman Sachs Physical Gold ETF(AAAU) has a -7.34% return on investment. Data on popular U.S. ETF returns provided by Etfdb.com.
Why gold ETFs are recording negative returns
The returns by the highlighted ETFs are in contrast with the position of gold in the investment circles. Historically, gold has functioned as a strategic asset in an investor’s portfolio due to its ability to effectively diversify and alleviate losses during challenging market conditions and economic downturns. In 2021, gold’s role has been tested, considering the economy is undergoing high inflation and the overall impact of the coronavirus pandemic.
Notably, since hitting an all-time high price of above $2000 in August 2021, the price of gold has been struggling to hit a new high, partly contributing to the negative returns. In contrast, most analysts expected gold to find support from higher inflation, currency debasement, structural changes to asset allocation. The precious metal is also projected to find support in a possible high-interest environment.
Worth noting is that the ETFs are recording negative returns considering the benefits they hold for investors. When compared to physical gold, Gold ETFs offer some distinct advantages like reduced worry about storage and theft. Furthermore, ETFs provide a lower cost of acquisition given the absence of making charges and other related expenses.
The gold prices have also been impacted by slowed-down physical demand, especially from central banks. Furthermore, a lackluster jewelry market in key markets in Asia has negatively impacted the price of gold and its investment products.
However, the returns by U.S. gold ETFs are not reflected in other markets. As we previously reported, gold ETFs in India attracted Rs 446 crore (almost $59.43 million) in September, which drastically exceeded the inflow of Rs 24 crore (almost $3.19 million) recorded in August. The demand for gold ETFs in India is expected to continue rising in the coming months amid strong demand driven by the festival season in the country.
Emerging gold alternatives
To some extent, investor interest in gold ETFs has also contributed to the negative returns. Notably, investors’ lack of interest in gold ETFs might potentially be due to the emergence of another alternative with Bitcoin taking center.
In 2021, Bitcoin has increasingly emerged as an option to gold as a store of value, with the price surging significantly. Despite Bitcoin gaining popularity alongside significant price growth, the asset still has not proven itself as a hedge against inflation. Worth noting is that amid rising inflation, Bitcoin value plunged coupled with increased regulatory scrutiny.
At the same time, it can also be assumed that investors might be waiting on the sidelines for the prices to stabilize. Additionally, reduced interest in gold might be due to investors diversifying their portfolios into equity markets that have largely remained stable in 2021.