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ETFs Add Gold for the First Time in Four Months

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Gold holdings in gold-backed ETFs rose globally by 16.5 tons in October. It was the first monthly net inflow of the yellow metal into ETFs in four months.

According to a report by the World Gold Council, positive gold price performance for the month (+2.3% in USD) was a key driver of inflows in North American and European funds. Global assets under management rose by 3.1% in US dollars relative to September.

Global stock markets experienced their worst October since the 2008 financial crisis with the MSCI All-World Index down more than 7.4% on the month. As a result, gold benefited from flight-to-safety investment flows. Further, US dollar-hedged gold benefited in the stronger dollar risk-off environment, rallying 4.3% on the month.”

After months of declines, gold finally moved into North American funds. They added 12.4 tons of gold in October. European funds also saw a healthy increase of 10.5 tons. Gold flowed out of Asian funds, primarily due to profit-taking in China as the price of gold in the yuan rose by as much as 5% in October.

After several months of net outflows, and a significant decline in the gold holdings of US funds, net global holdings of metal in gold-backed ETFs is down slightly on the year — 0.44%.

After reporting a monthly inflow after six consecutive months of outflows, North American funds remain negative on the year by 58.1 tons. In contrast, European funds continue to see net positive inflows.

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.

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