Gold ETFs Become Ground Zero As Spot Prices Whipsaw 10% In Hours

Gold ETFs suddenly became the market's relief valve on Tuesday, as the extreme volatility in spot gold prices drove record trading volumes in the two largest gold ETFs.

SPDR Gold Shares (NYSE:GLD) and iShares Gold Trust (NYSE:IAU) traded close to $33 billion in intraday volume, marking a record single-day turnover, according to Liz Thomas, Head of Investment Strategy at SoFi Technologies Inc. (NASDAQ:SOFI).

Total volume was on track to reach $45 billion by the end of the trading day. This underscores how exchange-traded funds have become the fastest way for investors to react when gold markets are repriced.

Spot Gold's Round Trip

Spot gold prices surged to around $5,598 before plummeting back to around $5,097 in a matter of hours. That’s a near 10% round trip in an asset class that is normally considered a low-volatility safe haven.

As traders struggled to make sense of the sudden disruption in gold's normal price action, hedge fund manager James Lavish summed up the day’s events: "Houston, we have a problem."

A Stress Test Of Gold's Safe-Haven Status

Instead of being channeled mostly through futures or physical markets, investors choose ETFs to express both defensive and tactical views. Intraday charts indicate that GLD and IAU processed extreme two-way volumes as traders quickly repositioned, solidifying their function as liquidity centers during times of market stress.

The magnitude of trading volumes underscored the critical infrastructure role of gold ETFs. They enable investors to respond instantly without having to contend with the complexities of derivatives or physical trading.

Gold ETF volume surges have traditionally been associated with significant macro events (i.e., the global financial crisis and the first years of the Covid-19 pandemic). Tuesday's event, however, was distinguished by its magnitude and intraday intensity. It also reflects a possible paradigm shift in how gold behaves during volatility shocks.

What Investors Are Watching Next

Although gold continues to be a traditional hedge against inflation, geopolitical risk, and currency fluctuations, the day's price behavior put its status as a stabilizer to the test.

In this instance, gold itself became the source of market instability—and ETFs were the market's preferred conduit for managing that risk.

Gold ETFs remain among the most liquid instruments in the world, capable of handling large volumes even in times of extreme dislocation. But, in today's world, even risk-off assets trade like risk-on assets. ETFs, it appears, are where this dynamic plays out in real time.

Image: Shutterstock