ETFs Globally Continued to Add Gold in July

Gold continues to flow into ETFs. After increasing holdings by 40 tons in the second quarter, funds globally added another 11.1 tons of gold in July, according to the latest data from the World Gold Council.

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 (2009/646 tons). But with declines in the price of gold and investors pivoting to riskier investments as economies improve, gold flowed out of ETFs in the first quarter. That trend reversed in May and we’ve seen holdings increase over the last three months.

European ETFs led the way in July, adding 17.1 tons of gold. Funds based in Germany and UK saw the biggest influx of metal. The European Central Bank’s pledge to keep monetary policy supportive of growth helped spur gold investment in Europe.

Asian-based funds also saw strong inflows of 1 ton. Positive investment demand in China supported by the strength of the local gold price was a primary driver.

Growth in Europe and Asia was partially offset by outflows of gold from North American funds. Holdings there fell by 7.3 tons. Outflows in North America were almost entirely driven by two large US funds – SPDR and iShares. The perception that the Fed may tighten monetary policy sooner rather than later has created significant headwinds in the American gold market. Peter Schiff has explained why this expected tightening is unlikely to happen.

Funds in other areas, including Australia, saw modest gold inflows of 0.3 tons.

Total ETF gold holdings globally stand at 3635.8 tons valued at roughly $213.7 billion. That’s about 272 tons shy of the October 2020 record of  3,908 tons.

In dollar terms, gold recovered some of its losses from June, finishing the month 3.6% higher at $1,826 per ounce. The World Gold Council projects several factors that will support gold in the coming months, including a historically strong September bolstered by seasonal consumer demand, and higher inflation expectations, particularly if the Federal Reserve stands by its remarks prioritizing employment over inflation.

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.