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Gold Less Prone to Turmoil as ETF Cash Eases Price Swings

  • Volatility near 12-year low as long-only investments increase
  • Bullion-backed ETFs now two-thirds of precious-metals holdings

In times of trouble, gold has long been a popular haven for investors expecting that more volatility will increase the value of the commodity. But lately, it’s taking more than threats of war or terrorist attacks to get much of a reaction from the bullion market.

Price swings for the precious metal narrowed last month to the smallest in more than a decade, even with rising tensions between the U.S. and North Korea, political discord in Europe, and trade disputes fueled by Donald Trump’s America-first policies. That’s a disappointment for investors who remember how gold tripled in value after the 2008 financial crisis or surged more than 50 percent in the months after the Iranian hostage crisis in 1979.

One possible reason for the lack of volatility is the growth of exchange-traded funds backed by gold, which account for about two-thirds of the $113 billion invested in precious metals, compared with almost nothing before 2004, when bullion ETFs were created, according to Chris Louney at RBC Capital Markets. ETF investors may help stabilize the market because they tend to hold assets longer than hedge funds and large speculators who are more likely to react faster to events, said Michael Blumenroth, an analyst at Deutsche Bank.

“You’ve got a lot more retail interest, and that constant state of demand has brought down the overall volatility,” said Peter Sorrentino, the Dallas-based chief investment officer of Comerica Asset Management Group, which oversees $43 billion, including gold ETFs. In essence, the commodity “has been securitized” by the inflow of retail cash, he said.

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Resource Commodities

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