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Gold demand lifted by central banks and ETFs in Q1

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Gold-backed ETFs saw a strong start to the year, with 40.3t of global inflows during Q1. In value terms, those inflows were equivalent to USD1.9 billion, according to a new report from the World Gold Council.

Flows during the quarter though, were not just one way – there were notable monthly variations: chunky inflows in January (+71.4t) were partially offset by February outflows (-32.9t) while March was broadly neutral (+1.8t). Global AUM grew almost 2 per cent during Q1, to reach 2,482.8t (USD103.4 billion) by quarter-end.
 
At a regional level, products listed in the US and Europe both had decent inflows – of 26.4t and 20t respectively – while AUM in funds listed in Asia and other regions declined slightly (-6.1t).
 
US-listed funds grew by 2 per cent during Q1. Investors added 26.4t to their holdings of North American-listed funds, equal to USD1.1 billion of inflows. But investment flows were not consistent throughout the quarter. Strong January inflows (+53t) were supported by the US government shutdown, an escalation in US/China tensions after the White House cancelled a planned trade discussion, and growing doubts over the health of the US economy. February saw much of those flows reversed as the more tactical investors took profit on their holdings.
 
Despite US stock markets generating their strongest quarterly returns in ten years, investor sentiment in Q1 was underpinned by the shifting stance of the Federal Reserve, which adopted a more neutral monetary policy approach. The concurrent shift in market expectations – from a predicted scenario of US rate rises to one in which rates stay unchanged over the remainder of this year – supported demand for gold-backed ETFs.6 And this more dovish outlook should underpin regional demand for the rest of 2019, although continued strength in the stock market would be a headwind.
 
AUM in European-listed ETFs remains near all-time highs. As the euro gold price surged to an 18-month high in the early weeks of the year, investment flowed in to regional gold-backed ETFs (+20.1t). AUM in these products hit record levels, breaching 1,200t. Since the January influx, investment has been steady; marginal February outflows were fully reversed in March.
 
Alistair Hewitt, Head of Market Intelligence at the World Gold Council, says: “The beginning of 2019 saw a sharp recovery in investor sentiment in both the equity and debt markets, but appetite for gold remained solid. In Q1, central banks continued to increase their holdings of gold, while ETFs also saw an increase in inflows compared with the first quarter of 2018. European investment in ETFs hit a record high and this quarter’s figures suggest that the factors that are driving the investment – negative yields on Eurozone sovereign debt, geopolitical uncertainty and financial market volatility – will continue to underpin investment demand. In addition, central banks on both sides of the Atlantic putting monetary policy tightening on hold – and potentially easing – is likely to be supportive of gold.”

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