Flow of Gold into ETFs Sets Quarterly Record

Inflows of gold into gold-backed ETFs set a quarterly dollar record in Q1 2020 as holdings increased by the most tonnage in any quarter since 2016.

Gold-backed ETFs added 298 tons of gold through the first three months of 2020, amounting to $23 billion in net inflows. That pushed total holdings to a new record of 3,185 tons, according to data released by the World Gold Council.

Over the past 12 months, gold ETFs added 659 tons, the highest on a rolling annual basis since the 2008 financial crisis. Assets under management (AUM) have grown by 57% over the same period.

ETF gold holding increased by 151 tons in March alone. Trading volumes and AUM reached record highs as gold volatility increased to levels last seen during the financial crisis.

European funds led regional inflows last month, growing by 84 tons.

North American funds added 57 tons of gold.

Asian funds, led by the Chinese increased holdings by 4.9 tons.

Funds in other regions, including Australia, grew by 4.7 tons.

Gold experienced significant price volatility in March. The price remained mostly flat in US dollars for the month. But gold prices denominated in many other currencies continued to reach all-time highs.

The World Gold Council gave an overview of the price movement last month.

When risk assets like stocks sold off sharply, investors needed to meet capital requirements; one way they were able to do this was to sell a liquid and outperforming asset like gold. At its trough, gold sold off 7% during the month, effectively giving up its yearly gains only to rebound later.”

As we have explained, the WGC noted that gold sold off similarly in the early days of the 2008 crisis.

When stocks sold off sharply in 2008 gold experienced a few pullbacks, falling more than 30% from peak to trough but rallied back to close 4% higher on the year. What followed was the initial Quantitative Easing (QE) program in the US, along with similar monetary policy interventions worldwide, which propelled gold over 600% higher at its peak in September 2011. Other drivers included: higher risk, particularly in the European region, gold’s store of value quality coming to the fore and an improved opportunity cost in the face of lower rates.”

The WGC takes a bullish position on gold in the coming months.

With the Fed taking interest rates to zero for the foreseeable future, gold could do well as it tends to outperform during easing cycles. Additionally, multi-trillion-dollar fiscal stimulus policies to combat the economic impact of COVID-19 could prove inflationary – a development that could support gold prices in the long run.”

Inflows of gold into ETFs are significant in their effect on the world gold market, pushing overall demand higher.

There’s a difference between investing in gold-backed ETFs and physical gold. Learn more here.

ETFs are backed by physical gold held by the issuer and are traded on the market like stocks. They allow investors to play gold without having to buy full ounces of gold at spot price. Since their purchase is just a number in a computer, they can trade their investment into another stock or cash pretty much whenever they want, even multiple times on the same day. Many speculative investors appreciate this liquidity.

There are good reasons to invest in ETFs, but they aren’t a substitute for owning physical metal. In an overall investment strategy, SchiffGold recommends buying gold bullion first.

When considering gold-backed ETFs, you should always keep in mind that you don’t actually own the gold. Buying the most common ETFs does not entitle you to any actual amount of the precious metal.