ETF Gold Holdings Rise for 11th Straight Month, Set New Record
Global ETF gold holdings rose for the 11th straight month in October, setting yet another new record at 3,899 tons valued at $235 billion.
Gold-backed ETFs added another 20.3 tons in October, bringing the total inflows for 2020 to a single-year record of 1,022 tons, according to the latest data from the World Gold Council. The previous yearly inflow record was 646 tons set back in 2009.
Eleven straight months of gold inflows also tied the record for consecutive positive months set in April 2006.
European funds led the way in October with an increase in gold holding of 20.2 tons. North American funds had inflows of 1.8 tons. Asian funds saw their gold holdings increase by 1.1 tons. Other regions, including Australia, saw outflows of 2.8 tons.
The World Gold Council sees investment demand for gold remaining strong in the near-term, even as the global pandemic continues to slow the global economy, which in turn will negatively impact consumer demand for jewelry and technology.
Given the recent uptick in global COVID-19 cases, geopolitical and market uncertainty, and the expected long-term, low-rate environment that improves gold’s opportunity cost, we do not see this scenario changing in the coming months.”
Last month, the WGC also noted that central banks seem willing to let inflation run hot, a bullish policy for gold. In August, the Fed shifted the inflation goalposts and other central banks seem set to follow suit. The WGC says the Federal Reserve’s higher inflation targeting policy could bode well for gold prices in the future.
Gold is seen as a well-established global inflation hedge, historically achieving stronger returns in higher inflationary markets. In the US, for example, since 1971, the nominal returns of gold with CPI levels below 3% have averaged nearly 6%, while returns in inflation environments above 3% have averaged 15%.”
Inflows of gold into ETFs are significant in their effect on the world gold market, pushing overall demand higher.
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.