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ETF Gold Holdings Back on the Upswing in January

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After two consecutive months of outflows, gold-backed ETFs became net buyers of gold again last month. Gold-backed funds added 13.8 tons of gold to their holdings globally, driven by inflows in Europe-based funds, according to the latest data from the World Gold Council.

Gold-backed ETF assets under management (AUM) globally now stand at 3,765 tons totaling $226 billion. That’s about 4% below the intra-month record of $3915.8 tons set in early November.

In 2020, gold-backed ETFs recorded record net inflows of gold. Funds added nearly 231 more tons in 2020 than they did during the previous record year of 2009 (646 tons).

European funds accounted for the bulk of the global inflows in January, with gold holdings rising by 17.5 tons. UK-listed funds led the way, adding 9.4 tons, followed by German and French-listed funds.

Holdings in North American funds fell by 6.3 tons.

Holdings in Asian funds were flat, but looking at the bigger trend, Asian gold ETF holdings have grown by more than 50% over the past 12 months.

Holding in funds listed in other regions, including Australia, rose by 2.7 tons.

The World Gold Council expects investment demand for gold to remain robust in 2021 and cited three portfolio risks investors will have to navigate.

  • ballooning budget deficits
  • concerns around increasing inflationary pressures
  • the potential for equity market corrections as valuations remains high.

The opportunity cost of holding gold is likely to remain low for the foreseeable future. For example, the Federal Reserve Chairman, Jerome Powell, has indicated that interest rates in the US would be kept low to provide continued support for an economic recovery. Gold’s strong 2020 performance, a year in which it had one of its lowest historical drawdowns, helped investors limit losses and manage volatility risk. In the light of this, we anticipate that investors will continue to view an allocation to gold favorably as a hedge against the ongoing risks mentioned above. Gold ETF inflows in January appear to provide support for this view.”

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.

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