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World Gold Council gold ETF figures show dominance across the board

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The World Gold Council reports that in the last five months, gold-backed ETF inflows have outpaced records for any whole calendar year, hitting record AUM highs of USD195 billion.

The World Gold Council reports that in the last five months, gold-backed ETF inflows have outpaced records for any whole calendar year, hitting record AUM highs of USD195 billion.

Furthermore, European funds added 2.9 per cent in assets, at USD2.4 billion, which was led by UK-based funds, which accounted for 65 per cent of the total in the region.

Adam Perlaky, Investment Research, at the World Gold Council, says: “Gold ETFs saw inflows on all but two trading days over the past two months, underscoring that investors are embracing gold in both risk-on and risk-off environments. As investors seek to efficient and effective strategies to hedge ballooning budget deficits and high valuations for both stocks and bonds, collective holdings of gold ETFs exceed the official gold reserves of every country except for the US. Ongoing economic and employment uncertainty around COVID-19, trade tensions and continued central bank asset purchasing, are driving gold prices and gold ETF inflows globally even as markets begin to steady.”

North American-listed gold ETFs led regional inflows during May, with the World Gold Council writing that flows in the region are historically more correlated with gold’s price behaviour. 

The region’s funds led inflows for a second straight month, adding 102t (USD5.6 billion, 5.6 per cent AUM). North American funds now hold 1,815t of gold, surpassing the previous highs of 1,736t they held in December 2012. European funds are detailed above but Asian funds – primarily in China – also grew, adding 4.4t (USD262 million, 4.7 per cent), and funds in other regions grew 4.3 per cent, adding 2.6t and USD136 million.

Drivers behind the inflows into gold include lingering uncertainty as to the economic and social impact of COVID-19, as most economies remain shut down or are slowly reopening, the World Gold Council says.

Tensions between the US and China continue to escalate, adding to the inflows into gold, and labour markets are facing challenges not seen in generations.

“In the US, the unemployment rate is already at 14 per cent and may soon reach levels last during the Great Depression of the 1930s,” the World Gold Council writes.

The Council says: “Monetary policy intervention is expanding into asset classes that would have seemed incredibly unlikely even a few months ago, such as high yield (junk) bond ETFs in the US. This has helped push bond yields even lower, reducing gold’s opportunity cost further and adding to market uncertainty as we are in unchartered waters.

“As investors look to hedge the economic risks of ballooning budget deficits and high valuations for both stocks and bonds, collective holdings of gold ETFs have now surpassed Germany’s official gold reserves and exceed the official gold reserves of every country except for the US. This also highlights the increasing acceptance of gold ETFs among investors as a means to gain exposure to gold,” says the World Gold Council.

In terms of price performance, gold in US dollars was higher by 2.6 per cent in May, finishing the month at USD1,728/oz. Gold volatility decreased significantly from the extreme levels in March, and 30-day realised volatility fell by nearly half from 29 per cent in April to 15 per cent in May. Implied volatility – or how much investors expected gold would move across tenors – remained somewhat elevated, signalling that investors expect meaningful moves in the gold prices in the near-term, the World Gold Council says.

“At the time of publication, gold has outperformed most major asset classes this year, up by more than 15 per cent. Gold’s performance continues to distinguish itself from the wider commodity spectrum, as broader commodity indices are down 22 per cent – 30 per cent this year and oil (WTI) is down by more than 40 per cent. Oil did see a significant jump in May, up over 70 per cent, albeit off a very suppressed level, to finish back above USD30 a barrel.”

Looking forward, the World Gold Council believes that many of the positive gold demand drivers remain, with a few additions, including the lower rate environment, driven by continued central bank activity, coupled with an uptick in inflation expectations. They also see COVID uncertainty, both from an economic and social perspective, as well as the potential for a second wave of outbreaks, plus future stock earnings expectations have fallen, driving valuations even higher. Finally, the World Gold Council comments that race-related civil unrest in the US has recently emerged, creating additional uncertainty in markets.

The World Gold Council was a sponsor of the recent etfLIVE Europe digital summit. See the presentation here…

 

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