This is why Nobody Loves Gold ETFs

When it comes to commodities and the corresponding exchange traded funds, saying demand for a particular commodity is a big deal is an understatement.

And it is demand, or lack thereof, for gold that is hampering ETFs such as the SPDR Gold Shares GLD, the world’s largest ETF backed by physical holdings of gold. Not be trite, but these days, bullion demand is anything but golden.

Data out Tuesday from industry group GFMS show second-quarter gold demand among retail buyers in China slid 25 percent while jewelry demand slumped 23 percent, Reuters reports. China is the world’s largest gold-consuming country. 

GLD is trading modestly higher today, but the ETF has slumped 9.1 percent over the past 90 days and on the demand side, there is little relief sight. India, the world’s second-largest gold-consuming country after China, is often pointed to as a potential catalyst to lift gold demand, but that probably won’t be the case this time around if demand does not pick up next month with the start of Indian wedding season.

"According to the World Gold Council, India imported 891.5 tons of gold last year while demand was 811.1 metric tons. The council believes consumption will increase to between 900 tons and 1,000 tons this year," according to ETF Trends. 

Investors don’t appear enthusiastic about the idea of waiting around for GLD to bounce. Nearly $976 million was yanked from the ETF during the second quarter and outflows are accelerating in the current quarter. The third quarter isn’t even a month old, but GLD has already bled $1.11 billion in assets.

Waning enthusiasm for physical gold is also plaguing shares of gold miners. Over the past three months, four of the 12 worst-performing non-leveraged ETFs are gold or silver miners. That group includes the Market Vectors Gold Miners ETF GDX and the Market Vectors Junior Gold Miners ETF GDXJ, the two largest miners ETFs by assets.

Although there has been ample chatter regarding the dirt cheap valuations on the miners and the merits of the group as a contrarian play, there is no getting around the fact that the group is well out of favor with investors. Over the past three months, GDX has plunged 33.4% while GDXJ, the junior miners fund, has shed 25.1 percent over the same period.

As is the case with GLD, investors appear exasperated with the miners. During the second quarter, investors yanked a combined $256 million from GDX and GDXJ, but those outflows are quickening this quarter as the ETFs have lost a combined $202 million just this month.