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Gold Continues to Flow into ETFs with European Funds Leading the Way

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After surging in August and September, inflows of gold into gold-backed ETFs flattened, but remained in positive territory in October.

Global gold-backed ETF funds added 3.3 tons of gold last month, as inflows into European funds offset outflows in North America. according to the latest report by the World Gold Council

ETFs in Europe took in a healthy amount of gold in October, as investors added 11.2 tons with a value of around $523 million through funds listed in the region. There were outflows in North America of -8.0 tons, reversing some of its September gains. Meanwhile, Asian funds were flat, gaining 0.8 tons. ETFs in other regions lost -0.7 tons.

Overall, gold-backed ETFs have added about 182.2 tons of gold globally in 2017.  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 week’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.

Global gold-backed ETFs collectively held 2,347.6 tons of gold at the end of October. Funds added 182.2 tons of the yellow metal year-to-date, equivalent to $7.8 billion. This represents an increase of 8% of global AUM from December 2016.

Sluggishness in the North American gold-backed ETF market last month mirrors a similar phenomenon we’ve seen in physical gold demand. While investors in countries like China and India are buying gold, US demand for physical gold remains depressed. Peter Schiff talked about sagging US investment in gold last summer during an interview at International Metal Writers Conference. He said American investors are way too optimistic that Pres. Trump and the GOP will fix the US economy.

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.

Get Peter Schiff’s latest gold market analysis – click here for a free subscription to his exclusive monthly Gold Videocast.
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