July 9, 2020 by SchiffGold 0 0
Gold-backed ETFs closed out the first half of 2020 with their seventh consecutive month of inflows and significantly above the highest level of annual inflows, both in tonnage and US dollar terms.
Globally, gold-backed funds added 104 tons of gold to their holdings in June. Global holdings now stand at an all-time high of 3,621 tons, according to the latest data from the World Gold Council.
For H1 2020, global net inflows came in at 734 tons and a record of $40 billion. The WGC put the level of ETF gold demand into some historical perspective.
H1 inflows are also significantly higher than the multi-decade record level of central bank net purchases seen in 2018 and 2019, and could absorb a comparable amount of about 45% of global gold production in H1 2020.”
In just six months, ETFs have already eclipsed the previous yearly inflow records of 646 tons in 2009 and $23 billion in 2016.
North American funds added 83 tons of gold last month, dominating activity in June. North American funds accounted for 80% of global net inflows. SPDR Gold Shares led global inflows, gobbling up 56 tons of metal.
European listed funds added a healthy 18 tons of gold. Swiss and German-based funds saw the highest increases, offsetting declines in UK-based funds.
Asian-listed fund holdings rose fractionally by 0.4 tons. Indian ETFs saw the biggest increases in the region.
Funds in other regions, including Australia added 3 tons of gold.
In terms of price performance, gold was up about 2% in US dollars in June, reaching its highest level since October 2012. And the yellow metal continued to outperform other major asset classes. It has gained more than 17% over the first half of 2020. According to the WGC, this compares with global stocks, which remain below the level they started the year, and broader commodities – represented by the S&P GSCI – which are down 20%-30% y-t-d. Oil (WTI) continues to be one of the worst performing assets this year, down by nearly 34%.
The World Gold Council says the environment remains bullish for continued gold investment.
The economic and geopolitical environment remains supportive for gold investment, with most of the existing gold demand drivers still relevant. The opportunity cost of holding gold remains low, as continued central bank activity keeps interest rates low or negative, while several countries continue to experience high levels of tension/unrest.”
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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