ETFs outshine futures as investors look for gold exposure

LONDON (Reuters) - A rise in the cost of holding U.S. gold futures since the start of the coronavirus outbreak is pushing investors wanting exposure to the metal towards gold-backed exchange traded funds (ETFs), industry data shows.

Gold is increasingly in demand from buyers who believe it is likely to hold its value relative to other assets as the virus shakes the global economy. [GOL/]

Prices are up 14% this year and near eight-year highs around $1,725 an ounce.

Futures and ETFs allow investors to gain exposure to gold prices. Gold futures contracts give buyers the right to receive metal at a future date. ETFs store gold on investors’ behalf.

Futures tend to attract shorter-term investors and ETFs longer term investors. Futures positions are more expensive to hold, but are easy to trade in and out of and do not require investors to pay the full cost of the gold up front.

Investment flows into the two products typically move in parallel.

But since late March, total ETF holdings have grown 14%, while long positions -- bets on higher prices -- on the Comex exchange in New York fell 7%, according to data from the World Gold Council and CME Group, which operates Comex.

SPDR Gold Shares, the largest and most actively traded ETF, has swelled its gold hoard by 24% since late March.

(GRAPHIC - Gold ETF holdings vs futures positioning: )

The shift coincides with a period of reduced trading on Comex after coronavirus lockdowns interrupted gold supply routes and big gold-trading banks pulled back from the exchange.

Since then, futures have tended to trade significantly above London prices used by ETFs, and the cost of swapping expiring futures contracts for active ones – a trade known as a roll, which occurs every few months -- has risen sharply.

“If you were investing in Comex for the long term, things have got really bad for you,” said John Reade, chief strategist at the World Gold Council, which owns the SPDR Gold Shares ETF.

“You’re disincentivised as a Comex investor from holding those positions,” he said.

CME declined to comment.

Reporting by Peter Hobson. Editing by Jane Merriman