A Look Back at the Life of SPDR Gold Trust (ETF) (GLD)

The GLD was the first ETF to track a commodity

Nov 18, 2014 at 9:22 AM
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Happy 10th anniversary to the SPDR Gold Trust (ETF) (NYSEARCA:GLD)! (Click chart to enlarge.)

GLD Since 2004

In 2014, we pretty much take for granted that we can turn anything into a tradable exchange-traded fund (ETF). But back in 2004, it was a very new, and somewhat controversial, topic. GLD was the first ETF to track a commodity, and it arguably remains the most successful ETF ever, if you judge that by its success at tracking some sort of underlying asset (and adjusting it for degree of difficulty, since it's easier to track a stock index than a commodity). GLD is backed by actual, physical gold. You could theoretically redeem it from a vault in London. In contrast, the United States Oil Fund LP (ETF) (NYSEARCA:USO) tracks crude futures and has had similar contango issues to the iPath S&P 500 VIX Short-Term Futures ETN (VXX). That's the good news on GLD. The bad news is also that it tracks spot gold very well. That hasn't helped anyone much in 2014. (Click chart to enlarge.)

GLD In 2014

We're "off the lows," as they often say on TV. But, we're not off by much. The low was only two weeks ago, and about 4% lower. It's still down 2% on the year, and about 15% off its 2014 highs. But, if you like volatility, it's not so bad. Ten-day realized volatility sits at 14-month highs, and the GLD "VIX" is at the highest point in 2014.

Volume in GLD hasn't done well this year, though. In fact, it never recovered from levels in the spike in early 2013. And that in turn was dwarfed by volume in the run-up that peaked in 2011. That's especially alarming when you dollar-weight that volume. GLD was 55% higher then, and the volume was about four times our current levels. That's very much the opposite sort of trend we see in VXX, as dollar-weighted volume sets records every time volatility spikes a bit.

Perhaps this is more than a coincidence. There was a time that gold was held as a general portfolio hedge. And then along came the concept of volatility as an asset class. And of course the Chicago Board Options Exchange (CBOE) created myriad ways to actually buy and sell volatility more directly. So, I have to think the tradable CBOE Volatility Index (VIX) complex has soaked up lots of money that may have gone into GLD over the years.

Gold is, of course, traditionally an inflation hedge as well. So, even in a world without VXX, GLD wouldn't have served as a good counter-balance in deflationary times. Very tough to know, though -- there's no "control" universe where we can monitor GLD minus the VIXes. Going forward, GLD remains a great way to buy and sell gold. But gold itself dances more like a currency over time and much less like anything stock-related.


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