Gold-backed ETFs dropped in May – report

In a recent report, the World Gold Council reveals that holdings in global gold-backed exchange-traded funds or ETFs fell in May by 2.2 tonnes to 2,421 tonnes, equivalent to $141 million in outflows, as consistent European fund growth was offset by outflows in North America and Asia.

According to the market development organization, May results together with those of February and April have caused global gold-backed ETFs to lose 0.5% in assets so far this year. The loss is equivalent to 19 tonnes or $535 million.

The WGC report also shows that outflows in North American funds, which equal 13.7 tonnes or $580 million, were mostly driven by iShares Gold Trust and SPDR Gold Shares, the two largest funds globally.

“This trend was particularly acute in the first half of the month but has reversed to some degree in the past few weeks. Despite the strength in the price of gold, momentum positioning weakened as net longs decreased in COMEX futures and short interest increased in North American funds, likely impacting flows in the products, while gold trading volumes in May increased to $115 billion per day, in line with the 2018 and 2019 averages,” the document reads.

The industry group reports that low-cost gold-backed ETFs in the US, on the other hand, added $90 million in assets, led by SPDR Gold MiniShares and Graniteshares Gold Trust. “Low-cost assets have once again risen to all-time highs of 52 tonnes ($2.2 billion) or growth of 85% over the past year.”

When it comes to Asia, the World Gold Council says the continent’s gold-backed ETFs continued to decline sharply, losing 4.1 tonnes or $171 million. Only this quarter, the region has lost 10% of assets and 17% this year. “Gold rallied 4% in renminbi, and despite the 6% selloff in the local stock market, investors appear to be shifting investments into risky assets,” the report states.

Overall, stock markets across the globe finished May sharply lower due to the continued US/China trade negotiation breakdowns and the surprise announcement that the US plans to impose tariffs on Mexico in the coming weeks.

“And the selloff has continued into June. The risk-off environment created an opportunity for gold to showcase its role as a safe-haven asset. While gold was relatively flat when there were small movements in the stock market over the course of the month, gold was higher by 90bps, on average, each of the days the US stock market was down more than 1%,” the WGC analysis indicates.

According to the Council’s research, gold becomes much more inversely correlated with the stock market during multiple standard deviation moves to the downside. This is why, despite the poor performance through May, an increased risk-off sentiment prompted flows into gold-backed ETFs by the end of the month and at the beginning of June.

In Europe, political uncertainty and a weaker pound sterling have supported inflows in UK-based, gold-backed ETFs that remain near all-time highs. “European gold-backed ETF holdings represent its largest percentage of total global assets in history at 47% of total assets, trailing North America by 3%.”

When it comes to long-term trends, the World Gold Council predicts that strategic holders will continue to add to low-cost gold-backed ETFs, despite bearish positioning in the larger, momentum-driven funds and futures markets.

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Fed holding steady on rates may boost gold performance — report

Wednesday's Federal Reserve Open Markets Committee (FOMC) meeting is expected to confirm market expectations that the Federal Reserve will remain on hold for the rest of the year. This decision could have significant implications on the gold market, according to analysts at the World Gold Council (WGC).

Monetary policy dictates gold price

Historically, monetary policy has been a key catalyst for changes in gold price. "When the Fed has shifted from a tightening to a neutral stance, gold prices have increased, even if this effect has not always been immediate," WGC analysts note. Interest rates have become more influential relative to the value of US dollar, which is another deciding factor in gold performance.

This is especially true when the FOMC changes its policy stance because the market expectations will also adjust, and more uncertainties will emerge. In this case, holding rates steady instead of keep tightening (rate hikes) could have a positive effect on gold performance, albeit not for the short term. Effects after a transition in policy are not felt immediately due to several reasons: uncertainty over when hiking may resume, investors shifting toward safe fixed income assets, and uncertainties over currency and inflation.

However, reports from the World Gold Council indicate that "gold does perform better in a post tightening cycle." Gold investors may need to be patient as the period over which this occurs does vary. For instance, gold rose by 3.6% in 2001, 12 months after the Fed put a hold on interest rates, but rose by 7% in 2007 only one month after policy change.

Global risks give reasons to buy gold

A more dovish stance by the Fed, coupled with the ongoing trade talks between the US and China, could also contribute to a slowdown in US dollar appreciation, which could add to gold's momentum. Elsewhere, the European Central Bank's extended asset purchase program, as well as uncertainties surrounding Brexit, have provided additional risks in the global financial market. This may be good news for investors looking at gold for diversification and liquidity in a more turbulent market environment, the WGC reports.

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Gold-backed ETFs fell in February, following four months of inflows

After four straight months of inflows, holdings in global gold-backed ETFs and similar products fell in February by 33 tonnes to 2,479t, equivalent to $1.3 billion in outflows, and gold trading volumes decreased 5% below the 2018 averages to $104 billion per day, according to data from the World Gold Council (WGC).

However, global gold-backed ETF flows remain positive on the year ($1.7 billion) on the back of strong inflows in January.

“Despite a recovery in the stock market during January, investors globally remained concerned about the December rout. By February, some investors, especially in the US, gained a greater sense of comfort and flows started coming into stock-based as well as broad-based funds, and out of gold,” Juan Carlo Artigas, Director of Investment Research, WGC, told MINING.com.

“By the end of the month, rates increased as bond markets re-adjusted their Fed expectations increasing the opportunity cost of maintaining large exposure to gold. Finally, in the US, where the outflows were concentrated, there was likely profit taking from more tactical gold positions. However, many low-cost gold-backed ETFs, which are often used by strategic investors, continued to see net positive flows,” Artigas added.

Institutional and retail investors have piled into gold in recent months. Holdings in global gold-backed ETFs rose 72 tonnes in January to reach 2,513 tonnes, hitting the highest levels in nearly six years.

“Gold-backed ETFs and similar products account for a significant part of the gold market, with institutional and individual investors using them to implement many of their investment strategies,” Artigas said.

There are more than 80 gold backed ETF’s around the world, accounting for about 2,440 tonnes of gold. Purchasing gold-backed ETF’s is an alternative to buying coins. In February, SPDR Gold Shares led global outflows, losing 40t ($1.7 billion), while iShares Gold Trust added 7t ($299 million) followed by SPDR Gold MiniShares adding 3t ($122 million).

“[While] investors can access gold in many ways, I think what we are seeing is that towards the end of last year, North American investors started to use gold-backed ETF’S to get exposure to gold as they saw certainty increase, but you have also seen a more consistent approach from European investors,” Artigas said. “Gold-backed ETFs have been an important part of the story of gold for the past decade. They have been contributing to new demand for gold and continue to be relevant.”

 

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Central bank gold buying surges to 50 year high

Against a backdrop of continued stock market volatility and geopolitical risk, gold demand surged in Q4 of 2018, according to a new report released today from the World Gold Council.

Annual gold demand increased 4% on highest central bank buying in 50 years. Gold demand in 2018 reached 4,345.1 tonnes, up from 4,159.9 tonnes in 2017. Central banks’ demand for gold soared to the highest level since the dissolution of Bretton Woods. 

Central banks’ demand for gold soared to 651 tonnes in 2018, 74% higher year over year —the highest level since the dissolution of Bretton Woods and the US eliminated the gold standard.

Net purchases jumped to their highest since 1971, as a greater pool of central banks turned to gold as a diversifier.

Russia, Turkey and Kazakhstan remained key buyers throughout the year, while Russian gold production rose 10% year-over-year.

Central bank buying, Q4 2018, World Gold Council.

World Gold Council analysts assert that central banks reacted to rising macroeconomic and geopolitical pressures by actively increasing their gold reserves.

Stock market weakness in the fourth quarter helped fuel inflows into gold-backed exchange traded funds, which resulted in 3.4B  of inflows. The report reveals annual inflows into gold-backed ETFs slowed to 68.9 tonnes, 67% lower than the 206.4 tonnes in 2017.

Sizable annual flows into European-listed funds (+96.8 tonnes) drove growth in the sector, the report reads. And while North American funds experienced heavy outflows for part of the year, strong global Q4 inflows propelled total assets under management to 2,440 tonnes by year-end, up 3% year -over-year from 2,371 tonnes. For the first time since 2012, the value of total gold-backed ETF holdings finished the year above $100B.

Read the full report here.

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