Amid the second-largest gold sell-off since 1983, the casual observer could be forgiven for thinking that investors were dumping bullion in droves.
Initial data suggests otherwise.
The loss of confidence that caused gold prices to fall 10 percent in the four days through Monday has not yet unnerved investors in the leading gold exchange traded fund, nor caused futures traders to close out positions en masse, figures show.
The resilience of retail and professional traders in the face of heavy selling -- much of it said stemming from hedge funds eager to dress up end-of-quarter performance or pay margin calls in other markets -- supports the idea that bullion's shudder was a correction, not the end of its run.
It also appears to run counter to some speculation that one or another of the big institutional holders of the SPDR Gold Trust, the world's largest gold ETF, might have been liquidated. John Paulson's hedge fund held 7.6 percent of the $65 billion fund as of June 30, data show.
Physical gold holdings by the SPDR dipped only 0.8 percent during gold's four-day slump, despite prices falling by as much as 15 percent over that period, according to the latest holdings data released on Tuesday. At its lowest, gold was down more than 20 percent since a record high just four weeks ago.
The minor dip in holdings is remarkable, because many traders had initially feared that the advent of precious metal ETFs -- which five years ago opened up the gold market to many retail and institutional customers by making it as easy to trade as stocks -- would inject more volatility into markets.
Instead, those same investors appear to be holding firm to the view that gold is a better long-term bet with the euro debt crisis and a sputtering U.S. economy far from over.
People are not going to be easily squeezed out of their investment based on longer-term, positive bias toward gold. It's not a mentality among funds and individual investors that's going to be easily shaken, said David Meger, director of metals trading at Vision Financial Markets, a futures brokerage.
We really have to see a dramatic fundamental change here to change the overall investment view that gold is a safe haven, Meger said. We have seen an aggressive price decline, but fundamentally I don't believe much has changed.
STRONG INTEREST IN COMEX FUTURES, OPTIONS
There is no sign that other gold investors are heading for the exit either. Total outstanding contracts in COMEX gold futures only dropped less than 2 percent over the last four sessions, while open interest in gold options rose to a record on Friday.
Within long, passive well-diversified portfolios, you wouldn't necessarily see substantial selling activity within the gold trust because of a minor sell-off, said Abraham Bailin, Morningstar's exchange-traded fund analyst.
Bailin explained that the SPDR Gold Trust is attracting gold investors who want to diversify in the long run.
Depending on the market sentiment toward gold, the price performance of an asset will not always trigger any inflow/outflow event, certainly not immediately, Bailin said.
Many market watchers said that the popularity of the gold ETFs has played a key role in fueling the metal's decade-long bull market. It has rallied from just $250 an ounce in 2001 to around $1,650 on Tuesday.
Gold ETFs offer easy access as they are traded on stock exchanges similar to stocks. Bullion acquired is held by the funds' custodians and are used to create and back shares of the ETFs.
Since its launch in November 2004, the No. 1 SPDR Gold Trust has bought over 1,250 tonnes of gold in the open market, slightly more than China or Switzerland.
Bullion holdings of SPDR Gold Trust, however, were still sharply below a record of 1,320 tonnes set in July 2010, even as the price of the metal rose to a record above $1,920 an ounce earlier this month.
In late August, SPDR Gold briefly surpassed SPDR S&P 500 ETF to be the world's biggest ETF.
Kevin Quigg, global head of ETF capital markets at State Street Global Advisors (SSgA), said that SPDR Gold Trust remains the most popular way to invest in gold no matter how the price of gold performs. SSgA is the marketer of the gold ETF.
Regardless of how people feel about the gold market itself, and how people feel about its portfolio management perspective, the vehicle they are using to express that investment sentiment is the SPDR Gold Trust, Quigg said.
(Reporting by Frank Tang; Editing by Bob Burgdorfer)