The largest exchange-traded fund to track gold has seen heavy adoption thus far in 2018, with massive inflows amid a rally in the precious metal's price, as well as interest from investors looking to hedge their portfolios.
The SPDR Gold Shares GLD, +0.08% fund has had inflows of $873.6 million over the past week, according to FactSet data. That's the fourth-highest inflows of any U.S. listed ETF over the period, behind a trio of broad-based equity funds that includes the SPDR S&P 500 ETF Trust SPY, +1.16% , the largest ETF on the market, and which sees heavy volatility in its flows.
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The week's flows for the gold fund account for nearly half the $1.99 billion that has flowed into the fund over the past 12 months. The recent activity in the fund has taken its assets to about $36.3 billion, their highest level since November 2016.
A rival fund, the iShares Gold Trust IAU, +0.23% , has had inflows of $180.6 million over the past week, and $2.2 billion over the past year.
Gold prices GCZ8, -1.04% have been on a tear lately, having gained 5.7% over the past month and recently hitting their highest level since September. Over 2017, the gold ETF rose 12.8%, its best year since 2010.
While some of this rise has been credited to a decline in the U.S. dollar - which is down 11% against its major rivals over the past 12 months - the adoption has also come as U.S. stock indexes have been hitting repeated records at a time when concerns over valuation are growing. Bond yields are also expected to rise for several years - which would mean bond prices fall, as the two move inversely to each other. In other words, investors may be using gold as a hedge or diversification tool at a time when other asset classes may return less than they have been in the past, or when the returns could be negative.
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Nicholas Colas, co-founder of DataTrek Research, on Wednesday wrote that "it is time to consider what assets to add to a portfolio as a hedge." He considered five scenarios that he said could hurt equity markets over the next term: a trade war, an unexpected military conflict, a pullback in the stock market, an inflation scare and a "generic economic shock," possibly related to commodity prices.
For four of these scenarios, Colas recommended gold as a hedge (for the fifth, a pullback in stocks, he simply recommended waiting out the volatility). In reference to the inflation-scare scenario, he wrote that "we're already seeing a piece of the trade go on," referring to the inflows into the gold ETFs.