As equity prices fall and gold prices head above $1,900 an ounce, the market capitalizations of the two largest exchange traded funds have switched places, with State Street's SPDR Gold Shares (GLD) overtaking the SPDR S&P 500 (SPY) as the largest ETF in the world.
“Gold surged to a record high $1910 per ounce on Aug. 22, while a steady stream of weak economic reports pushed the S&P 500 down to its lowest in almost a year,” wrote Standard & Poor’s senior financial writer Vaughan Scully in a comment on Tuesday. “As equity prices decline and gold prices rise, the market capitalizations of the two largest exchange traded funds, SPY and GLD, have converged.”
On Aug. 19, the two ETFs crossed paths, with soaring gold prices pushing the net asset value of the gold ETF to $76.7 billion, and a plunging stock market driving the value of the S&P 500 ETF assets down to $74.4 billion, Scully noted.
However, Scully’s colleague, S&P gold equity analyst Leo Larkin, said in a phone interview that the run-up in gold prices may be overplayed in a heated market.
“We like gold stocks. We’re bullish on gold. However, at the current levels, we think gold is probably a little overextended in price,” Larkin said. “We are looking for a pullback. But it doesn’t change our long-term outlook, which is positive, bullish.”
IndexUniverse.com on Friday reported SPDR Gold ETF at an accumulated $1.5 billion in inflows so far in August. Meanwhile, $7 billion flowed out of SPY this month.
Ron DeLegge, editor of ETFguide.com, said Tuesday that investors who are pouring money into GLD are rushing into the ETF without looking at its real cost, investment expenses—or comparing it to its competitors.
“The real story is, why is so much money flooding into GLD when the iShares Gold Trust (IAU) does the exact same thing but for 15 basis points less?” DeLegge said in a phone interview.
In a follow-up email, DeLegge added that gold is doing exactly what it should be doing during times of crisis: going up.
“Interestingly, most 401(k) retirement plans offer no direct exposure to physical gold using ETFs,” he wrote. “Once this happens, gold will head even higher. Although I don't consider myself a ‘gold bug,’ I don't think gold is in a bubble. Bubbles are typified by excessive leverage, which is not the case this time around.”