Thanks in large part to demand by investors opting for gold exchange-traded funds, gold is one of this year's hottest assets.
However, the yellow metal, like any other security, doesn't move up in a straight line. The largest gold ETF enters Monday 6.39% off its 52-week high after trading modestly lower last week.
Two interesting things to consider here. First, gold ETFs dipped last week even amid rampant short covering. Second, there's a massive amount of short interest in some marquee gold ETFs to be unwound.
Three gold ETFs “landed in the top ten most short covered ETFs league table over the last week with $160 million worth of new buy-to-covers. Gold’s +28% move for the year and hitting its year to date high in early August may be squeezing some Gold ETF short sellers out of their positions,” according to S3 Partners research.
Here are those three ETFs.
VanEck Vectors Gold Miners ETF (GDX)
Up almost 40% this year, the VanEck Vectors Gold Miners ETF (NYSE:GDX) is chastening bearish traders. Last week, the largest gold miners resisted the commodity's decline, rising 1.34% on news that Warren Buffett's Berkshire Hathaway (NYSE: BRK-B) took a stake in Barrick Gold (NYSE:GOLD). That stock is GDX's second-largest component at a weight of just over 12%.
More than $90 million of short interest in GDX was covered last week, but short interest as a percentage of the ETF's float is still close to 10% and valued at $1.76 billion, according to S3, meaning it will take some time for shorts to cover this trade.
SPDR Gold Shares (GLD)
The SPDR Gold Shares (NYSE:GLD) is the largest physically-backed gold ETF and a favorite of professional traders on both sides of the bullish/bearish spectrum, owing to robust liquidity and tight spreads.
Traders covered almost $30 million worth of GLD shorts last week, but there's still $2.62 billion of short interest in the benchmark gold ETF, equivalent to 3.37% of the fund's float, notes S3. As is the case with GDX, it's likely to take bearish traders weeks, not days, to unwind that GLD short.
iShares Gold Trust (IAU)
Traders covered almost $40 million worth of bearish exposure in the iShares Gold Trust (NYSE:IAU) last week, whittling short interest in that ETF $93.57 million. That's just 0.30% of the float, indicating those shorts could cover in rapid fashion if need be.
“Short sellers in these three Gold ETFs are down -$760 million in year-to-date mark-to-market losses,” notes S3.
Dislcosure: The author owns shares of IAU.