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Gold Flows into ETFs for Second Straight Month; Global Holdings Up on the Year

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Gold holdings in gold-backed ETFs rose for the second straight month and turned positive for the year in November.

According to a report by the World Gold Council, 21.2 tons of gold, valued at about $804 million, flowed into ETFs last month. Total global holding rose to 2,365 tons. 

Global stock markets remained volatile, although they ultimately ended the month mixed. Oil performance was a key story as the commodity fell more than 22% on the month amidst supply concerns. The US 2/10 Treasury yield curve flattened to near-low prices on the year as investors became concerned that US economic conditions may have peaked and could be showing potential for a recession in either 2019 or 2020. Long-dollar hedged gold is now higher on the year, rallying over 6% in Q3 with the improving gold and US dollar pricing.”

Gold flowed into ETFs in every region last month.

Europe led the way with a net increase of 10.5 tons. European funds have consistently added gold all year. To date, ETFs in Europe have increased holdings by $2.9 billion. Political instability in Europe has driven strong safe-haven demand. As we reported earlier this week, demand for physical gold in Northern Ireland is up by as much as 70% due to Brexit uncertainty. The budget standoff between the EU and Italy has also caused jitters. Unrest in France will likely spur more safe-haven demand.

North American funds saw inflows of 8.4 tons in November. It was the second straight month that North American funds have increased gold holdings after six consecutive months of outflows. Even with two straight months of increases, North American funds are still negative by more than 50 tons on the year. Americans have generally been focused on the strong US stock market, not gold.

Asian fund holdings increased by 2.1 tons, reversing two months of weak performance. Asian funds added about 2.3% to their assets, but still remain negative on the year.

Collectively, US dollar flows into gold-backed ETFs now stand in positive territory, having increased by$354 million (0.4% AUM), despite mid-year weakness driven by a strong US dollar and some bearish gold market sentiment in the mainstream.

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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