European Investors Lead the Way as Gold Continues to Flow into ETFs

After a somewhat tepid October, gold inflows into ETFs picked up again in November, driven primarily by investors in Europe.

Global gold-backed ETFs increased their holdings by 9.1 tons last month, according to the latest data released by the World Gold Council. This continues a streak of monthly gains. In October, inflows came in at 3.3 tons, after surging in August and September.

European funds continued to lead the way. Investors added 15.8 tons of gold valued at around $622 million through funds listed in the region.

Meanwhile, gold flowed out of North American funds for the second straight month, with outflows of 5.4 tons. Asian funds were essentially unchanged, with outflows of just 0.3 tons.

Globally, gold-backed funds have added 198 tons of the yellow metal in 2017 with a value of around $8.5 billion – an increase of 8.3% of global assets under management since December 2016. This represents healthy growth, but it pales in comparison to last year’s massive influx of 540 tons.

This accounts in large part for last month’s headlines declaring gold demand is at an 8-year low. Demand is not nearly as soft as the year-to-year drop implies. This year’s numbers simply suffer from comparison.

Inflows of gold into ETFs over the last two years reverse a 3-year trend of outflows between 2013 and 2015.

Currently, global gold-backed ETFs collectively hold 2,357 tons of gold.

European funds have gobbled up gold this year, capturing 75% of global inflows. Investors in Europe have added 143 tons of the yellow metal. North America funds have seen more modest inflows of 62.3 tons so far in 2017.

Relative sluggishness in the North American gold-backed ETF market compared to Europe mirrors a similar phenomenon we’ve seen in physical gold demand. While Germans have been buying gold at a torrid pace, North American investors have focused most of their attention on the surging US stock market. Peter Schiff talked about sagging US investment in gold last summer during an interview at International Metal Writers Conference, saying US investors suffer from over-optimism.

You have the opposite of a bubble in gold. Certainly, if you look at the United States, Americans are buying less gold now than they’ve done since the bull market began in 1999 – 2000.  Sales from the US Mint have collapsed. At SchiffGold, we just had our weakest quarter since the company has been in existence. And it’s not just my firm. It’s industry-wide. Americans are not buying gold, even though gold prices year-to-date are up more than the S&P 500. But the people who typically buy gold in America voted for Trump, and they’re no longer worried about the economy. So they’re not buying gold. They’re buying stocks instead, and I think they’re making a big mistake. They should be selling their stocks and buying even more gold.”

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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