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Global Gold-Backed ETF Holdings Top $100 Billion for First Time in Six Years

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Total holdings in global gold-backed ETFs finished above $100 billion in 2018, according to the latest data by the World Gold Council. It’s the first time ETF total gold holdings have eclipsed the $100 billion mark since 2012.

Globally, ETFs added 69 tons of gold in 2018, bringing total holdings to 2,440 tons valued at $100.6 billion.

Inflows into European-based funds drove global growth last year. According to the WGC, funds based in Europe added 96.8 tons of gold in 2018, a 10% increase.

For the second straight year, Germany led country inflows, adding $2.6 billion worth of gold. This follows a more general trend; over the last 10 years, gold investment has boomed in Germany. This trend will likely continue as it appears Germany is on the cusp of a recession.

Funds based in the United Kingdom added about $1.7 billion in gold last year. Investment in the yellow metal has soared in the UK due to concerns over Brexit.

In contrast, North American funds saw net outflows of gold in 2018. Holdings fell by 13.4 tons. North American-based funds saw significant outflows during the third quarter, mirroring gold’s weak Q3 performance, but flows reversed in the fourth quarter as the US stock market began to sell off.  North American funds added 36.3 tons of gold in December alone.

Asian funds also saw modest outflows in 2018, shedding 4.7 tons on the year. According to the WGC, the flow of gold out of Asian-based ETFs was primarily driven by profit-taking.

The weaker emerging currencies, many of which fell over 10-20%, boosted local returns of gold and highlighted its global nature; i.e. it is not always viewed in US-dollar terms.”

The global flow of gold into ETFs finished the year strong, rising 76 tons (US$3.1 billion, 3%) in December. It marked the third month in a row with net inflows.

The World Gold Council noted that the price of gold was flat on the year, dropping by 1.1%. But the yellow metal rallied off August lows. As the WGC put it, gold was “shining as a safe haven in the fourth quarter, while markets like the S&P 500 fell 14% over the same period.”

In fact, gold outperformed the S&P 500 in 2018.

The movement of gold into ETFs over the 3 years reverses a 3-year trend of outflows between 2013 and 2015.

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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