When Gold ETF Volume Explodes Without Price Gains (GLD, IAU, PHYS, SGOL)

Traders and investors have generally tended to flock to the SPDR Gold Shares (NYSE: GLD) for the gold trade when it comes to an exchange-traded product backed by real gold.  That has not kept iShares Gold Trust (NYSE: IAU) from growing as well.  Two other exchange-traded instruments which have grown are the Sprott Physical Gold Trust ETV (NYSE: PHYS) and the ETFS Physical Swiss Gold Shares (NYSE: SGOL) are generally deemed to be smaller gold trusts that are used by traders.

Some of the volume seems counter-intuitive from an outsider’s view.  The “GLD” trades at what most consider to be 10% of the price of an ounce of gold, minus management fees and less the changes in net asset values; the “IAU” trades at roughly 1% the price of gold, minus the same discounts.  It would seem that investors might flock to the lower priced vehicle of the two, but that has not been the case.  Technically, the higher prices eat less into commissions and bid-ask spreads and that explains much.  There was a significant change to this on Monday favoring the IAU over the GLD.  We want to see if that trend is changing ahead.

Monday brought incredible trading volume to the “IAU” and it beat out the share trading volume over the GLD by more than double.  We wanted to see if there was a reason behind the move and it appears to be due to a refinement from management company Blackrock.

BlackRock, Inc. (NYSE: BLK) announced last Thursday that it completed the final stage of planned refinements to the iShares Gold Trust (NYSE: IAU).  The refinement is called a “final refinement” and the IAU will begin daily valuation of the Trust’s gold using the London PM Fix Price.  Blackrock further noted an 84% increase in the trading volume over the last six months.

Here is the volume of each of the four ETF products below, showing the last four days the share volume, and the closing prices of each.

We’ll be watching to see if the volume disparity continues or not.  IAU trades roughly 4.3 million shares per day against more than 17 million shares on average for the GLD.  As of 12:27 PM EST today, the GLD is up 0.45% at $136.67 on 8.29 million shares while the IAU is up 0.44% at $13.68 on only 1.237 million shares.  Monday may have been a one-day event but it will be key to watch to see if it gets repeated.

JON C. OGG