A Gold ETF Hits the Top

Gold has reached a new milestone: The leading exchange-traded fund that tracks bullion surpassed its stock market counterpart as the biggest ETF. The SPDR Gold Trust saw its market value rise to $76.7 billion on Aug. 19, when the metal topped $1,881 an ounce for the first time. The SPDR S&P 500 ETF Trust, which tracks Standard & Poor’s 500-stock index and reigned as the industry’s largest exchange-traded fund since 1993, stood at $74.4 billion. At the start of the year, the stock ETF was 56 percent larger than the gold ETF. “Gold has become the portfolio antidote for the global financial crisis,” says James McDonald, chief investment strategist at Northern Trust.

The gold fund’s reign was brief: It fell back to second place on Aug. 23 as the price of gold began a steep slide, settling at $1,757 an ounce on Aug. 24. Yet the factors that have driven gold’s price higher remain in place. Investors turn to gold in times of financial and economic turmoil as an alternative store of wealth to stocks and the dollar, and a hedge against inflation. Gold has been bolstered by concerns that European countries will struggle to repay their debts and that the U.S. economy is weakening under the strain of 9 percent-plus unemployment, depressed home values, and a decline in consumer confidence. “We are seeing some lasting asset-allocation shifts to gold, including by central banks, as well as some safe-haven flows that could well be reversed in the months ahead,” Mohamed El-Erian, chief executive officer of Pacific Investment Management, said on Aug. 18.