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Gold Continues to Flow into ETFs

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After hitting the highest level in more than a year last month, gold continued to flow into ETFs in May. But regional trends have reversed with European and Asian funds adding gold, as the yellow metal flows out of North American funds.

Global gold-backed ETF holdings added 15 tons of the yellow metal in May, boosting total holdings to 2,484 tons, according to the latest data released by the World Gold Council.

For the last several months, North American funds have led the way. In April, they added 44.2 tons of gold. But in May, North American funds shed 30 tons worth about $1.2 billion.

European and Asian funds made up the difference. European funds added 26 tons of gold. Meanwhile, net inflows in Asia came in at 21 tons. Asian gold-backed funds grew assets by a healthy 20%.

The WGC said outflows in North American funds were primarily due to volatile prices in the gold market.

Volatility and weakness in the gold market were largely driven by a stronger dollar (DXY +2.3% on the month). However, USD-hedged gold was higher by 1.4% on the month. This highlights our view that having some allocation to USD-hedged gold helps risk-adjusted returns by lowering price volatility in periods when currency prices fluctuate.”

Europe inflows have caught up with North American inflows on the year.

Overall globally, funds have recorded net inflows of gold in 2018. The movement of the yellow metal into ETFs over the last two years and continuing into 2018 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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