As Stocks Tumbled, the World’s Largest Gold ETF Saw Record Buying Demand
One month into 2022, the stock market is experiencing the most uncertainty and volatility since the world went into lockdown in March 2020.
Most recently, investors’ primary concern has been the Federal Reserve and its weekly flip-flopping on whether or not it will raise interest rates to combat inflation.
COVID-19, of course, has also played a part in the 7.6% dip in the S&P 500 (SPX) since the beginning of the year, mainly due to labor shortages and supply chain issues. Much of this drop is due to large corrections in leading tech stocks like Advanced Micro Devices (NASDAQ: AMD) and Nvidia (NASDAQ: NVDA), which have plagued the overall semiconductor industry.
Cryptocurrencies are faring even worse than the stock market. Bitcoin, the cryptocurrency poster child, has fallen over 19% in 2022; Ethereum, widely considered the #2 cryptocurrency, is down 30%. Meanwhile, less risky “stablecoins,” tied to tangible assets such as the U.S. dollar, have held up modestly well. Like stock traders, cryptocurrency investors seem to be fleeing assets that are seen as riskier and parking their money in less volatile investments.
The Golden Rule: He Who Has the Most Gold, Rules
Like virtually every correction in history, investors who fled risky assets look at gold as a safe place to park their money. There are several ways to invest in gold, including actual gold bullion, gold futures contracts, gold mining/processing companies and an ETF composed of gold-centric companies. It is this last option that has seen a surge of attention recently.
On Friday, January 21, the SPDR Gold Trust ETF (NYSE: GLD), the largest ETF backed by gold bullion, saw the highest daily influx of investments since its inception in 2004. The largest Gold ETD saw approximately $1.6 billion inflow, enough to buy over 27 tonnes of gold bullion at today’s prices.
Whether this shift in investment sentiment from high-growth assets to more stable, value-oriented assets is temporary or a long-term phenomenon is yet to be seen. If one thinks it’s only temporary, the correction should serve as an opportunity to buy high-growth assets at a discount. However, if it persists for an extended period, we might see new lows established. Place your bets accordingly.
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Disclaimer: Wealthy VC does not hold a position in any of the stocks, ETFs or cryptocurrencies mentioned in this article.
