Recently we asked our favourite economists, analysts, and traders for their most important charts of 2012.
John Stoltzfus and Matthew Naidorf at Oppenheimer Asset Management brought to our attention an interesting chart: the price of gold annotated with the date the gold ETF was introduced back in 2004.
The chart shows that the introduction of the gold ETF (GLD) in November 2004 precursored a pretty substantial inflection point in gold appreciation:
Stoltzfus and Naidorf suggest that even with everything that has taken place at the macro level over the past decade, the gold ETF may be one of the most important factors behind gold’s parabolic rise.
The Oppenheimer strategists explain (emphasis theirs):
We surmise that the introduction of the U.S.-traded Gold ETF (GLD) on November 18, 2004 has been in no small part responsible for the persistently good performance of the precious metal for close to 8 years since.
In the 8 years prior to the introduction of the GLD, gold prices increased 16.84% while rates on the 10-year declined 33.55%.
During the 8 years since the GLD ETF began trading, gold prices have increased 286.90% while rates on the 10-year declined 61.65%.
Uncertainty, financial crisis, currency debasement, accommodative monetary policies, and central bank additions to gold reserves undoubtedly whetted investors’ appetite for the “safe haven” and “storehouse of value” attributes of the metal. We believe, however, that ultimately it was the accessibility and liquidity provided by the ETF structure that facilitated the momentum and scope of gold’s performance. Our chart illustrates the rise of gold eight years before and eight years after the launch of SPDR Gold Shares (GLD).
Prior to the introduction of Gold ETFs, investors seeking exposure to the metal were limited to gold mining stocks, bullion, coins and futures contracts, which carry among them extra risks including mining company fundamentals, bid and ask spreads, valuation, storage costs, liquidity constraints and futures expiries.
ETFs are becoming more and more popular as an investment vehicle across asset classes, even in more traditional, easier-to-access markets like equities.
Regarding gold, the introduction of an ETF may have been one of the most significant developments yet for the shiny yellow metal.