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Gold Flowed into Asian and European ETFs in August, But North America Continues to See Outflows

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Gold flowed into European and Asian ETFs last month, but outflows from North American funds pushed total global holdings lower.

Funds listed in China drove Asian ETF stocks of the yellow metal up last month. Asian ETFs added 2 tons of gold in August as investors hedged trade risks and currency weakness. Asian funds have seen an impressive percentage increase in 2018, growing by 9.1% year-to-date, according to data released by the World Gold Council.

European funds also added gold in August. Holdings grew by 4 tons last month. European-based ETFs have led the way so far this year, adding $2.3 billion in gold (5.7% AUM) to their holdings year-to-date.

Global outflows were led by North American funds, which lost $1.65 billion, driven by a combination of momentum – as the US dollar gold price fell by more than 2% on the month – and a risk-on appetite by US investors in the face of an expanding economy.  Forty-four tons of gold flowed out of North American funds. It was the fourth straight negative month for North American gold-backed ETFs. The outflow of gold from ETFs isn’t surprising in light of the decline in the dollar price of the yellow metal.

There were also outflows in other regions as countries facing currency crises used gold for liquidity, according to the WGC.

Funds in South Africa and Turkey suffered losses as the rand and lira depreciated sharply. In Turkey, anecdotal evidence suggests that investors have been using gold as a source of liquidity, and we believe South African investors may have acted similarly.”

Globally, holdings in global gold-backed ETFs and similar products fell by 40 tons to 2,353 tons in August – the third consecutive month of net-outflows.

The WGC said there are signs we might be set up for a rally in the price of gold.

Recent reports of COMEX futures show extreme short positioning as gold’s pullback generated additional selling pressure from money managers. Money managers’ net longs have not been this negative since data became available in 2006, and non-commercial non-reporting net longs turned negative earlier this month for the first time since 2001. But such negative positioning has historically preceded rallies in the price of gold.”

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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