By Lewis Braham
George Milling-Stanley recalls the day that SPDR Gold Trust, now better known by its ticker, GLD, launched in November of 2004. Though he was part of the World Gold Council team that developed and researched the potential market for the first U.S. bullion exchange-traded fund, he didn’t quite anticipate the pent-up demand for liquid gold.
“When we launched it, the chairman of the World Gold Council, a gentleman called Chris Thompson, said to me, ‘I’ll call you a success when GLD has a $1 billion in assets, which I expect in six months,’ ” he says. “I called him three trading days after we launched and said, ‘Chris, call me a success. We have a billion.’ It was the fastest-growing ETF ever.”
Today, ETFs that own gold bullion (not miners or other gold-related stocks) have $93 billion; GLD has $40.8 billion of that. Gold-bullion ETFs have become big players in the gold market, so much so that some argue that their fund flows are driving gold prices. Gold ETFs saw $13.8 billion in new money in the first quarter, representing 363.7 tons of the yellow metal, and the second strongest quarter since March of 2009, during the financial crisis. More important, the inflows represented 28% of all global demand—1,289.8 tons—for physical gold that quarter. The gold price is up 25.9% this year, to $1,336.09.
BUT WHAT REALLY DRIVES the price of gold? “ETFs have become an integral part of the gold market, but it’s just one of four or five price drivers,” says Milling-Stanley, who now works for State Street Global Advisors, GLD’s marketing agent, as head of the gold-strategy team. “At times, ETF demand is the leader. We certainly saw this through the whole of 2011, when the price surged more than $500 in just a few months, primarily because of demand for ETFs. But there will be other times when jewelry demand in Asia or the value of the U.S. dollar are more important.”