The uber-popular SPDR Gold Shares ETF “GLD” is the subject of a long and fascinating profile in the WSJ titled: How A Fund Helped Make Gold Prices Glitter.
The gist is that in 2004, gold was a dreary, forgotten asset and so the gold industry got together and democratized gold by creating an ETF that tracked the commodity and that since then there’s been this huge boom.
Now it is true that the ETF is now one of the biggest holders of gold in the world, and it is true also that gold has boomed since the launch of the ETF, but are the two related in any way?
The evidence is not clear.
As a test, we checked out gold in relation to copper and oil, two commodities that NOBODY thinks are strongly influenced by ETFs. What we see is two things: One is that the gold/copper and gold/oil ratios stayed pretty low for quite some time after the creation of the ETF, even as the ETF grew 10x in the amount of gold it held (it went from holding $1 billion worth of gold to $10 billion after two years, according to WSJ). And even now, with gold near record highs, the ratios are firmly in line with historical norms.
In other words, if you take the dollar out of the equation, you just don’t see anything weird going on with gold post-creation of the ETF, which you would expect if there were some new force creating a bubble in gold.
If anyone has any empirical evidence that the ETF has created a big distortion in the market — rather than just conjecture — we’d love to hear it.
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