WGC Report: Global Gold-Backed ETF shows spurt in 7th Consecutive month

Gold-backed ETFs (gold ETFs) recorded their seventh consecutive month of positive flows, adding 104 tonnes (t) in June

Post By : IJ News Service On 07 July 2020 7:31 PM

Gold-backed ETFs (gold ETFs) recorded their seventh consecutive month of positive flows, adding 104 tonnes (t) in June — equivalent to US$5.6bn or 2.7 per cent of assets under management (AUM) — taking global holdings to new all- time highs of 3,621t’. This brings H1 global net inflows to 734t (US$39.5bn), significantly above the highest level of annual inflows, both in tonnage terms (646t in 2009) and US-dollar value (US$23bn in 2016). 
To put this strength of demand into context, 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  per cent of global gold production in H1 2020.'

Highlights

  • • 2020 flows reached record levels in tonnes and US dollar terms
  • • North American funds dominate inflows in June
  • • SPDR@ Gold Shares and ishares Gold Trust represented 67 per cent of all global inflows in June
     

Macroeconomic drivers

Stock markets started the month positively, with optimism growing as economies around the world began to emerge from their respective lockdowns. US stocks were boosted by a jobs report that defied dire expectations and showed a fall in unemployment from 14.7 per cent to 13.3 per cent. 2 In Europe, the easing of strict lockdown restrictions in several economies gave investors further hope for a recovery in the global economy. However, as the month progressed, this positive sentiment was replaced by concerns over increasing COVID-19 infection rates in various locations and the potential for a second wave.

Despite the better-than-expected US jobs report for May, and emerging signs of recovery in the US economy following the COVID-19 lockdown, Federal Reserve (Fed) Chairman Powell remained cautious, saying that the Fed is "...strongly committed to using our tools to do whatever we can for as long as it takes...". While the potential for further accommodative monetary policy measures has been generally seen as positive for stocks, the cautious tone reinforced a more general risk-off sentiment, as many market participants started to shift expectations that any economic recovery will likely be slower (U-shaped) as opposed to swifter (V-shaped).

Speculation over the potential impact of a second wave of COVID-19 infections on an already fragile global economy caused a renewed wave of fear and uncertainty.

Meanwhile, ongoing asset purchases by central banks to mitigate the impact of the pandemic further reduced the opportunity cost of holding non-yielding assets such as gold. These factors continued to drive gold investment demand, with gold ETFs a key beneficiary of this momentum.

Price performance

Gold in US dollars extended its y-I-d gains in June, as it rose 2 per cent to finish at US$1,768.1/oz — reaching its highest level since October 2012. Gold volatility remained below the elevated levels seen in March and April (>30 %), with 30-day realised volatility decreasing to around 14%-15  per cent in June. Implied volatility remained steady during the month, oscillating around 20%, indicating that investors are expecting more short-term movement in the gold price.

Gold continued its outperformance of other major asset classes in June and has gained more than 17 per cent over the first half of 2020. This compares with plobal stocks, which remain below the level they started the year, and broader commodities — represented by the S&P GSCI — which are down 20 per cent -30 per cent y-I-d. Oil (WTI) continues to be one of the worst performing assets this year, down by nearly 34 per cent.

Global gold trading volumes fell to US$156.9bn a day in June, down 6 per cent from US$167.6bn in May. Daily trading volumes remain below the y-I-d record of US$233bn seen in March, but comfortably above the 2019 daily average of US$145.7bn. COMEX net longs, via the Commitment of Traders (COT) report, fell to 701 t — their lowest level since June 2019, before recovering towards the end month to 857t, 30 per cent below February‘s all-time high of 1,209t (US$63bn).”

Looking forward

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.

And there are serious concerns that the trajectory of the COVID-19 pandemic threatens any nascent economic recovery. Growing infection rates across some parts of the world, particularly in the US, suggest that there is some way to go before economies can reopen with confidence. In a recent media briefing, Dr Tedros Adhanom
Ghebreyesus, head of the World Health Organization (WHO), warned that: "Although many countries have made some progress, globally the pandemic is actually speeding up“," meaning that investors will continue to face heightened risk and uncertainty.

Gold-backed ETFs and similar products account for a significant part of the gold market, with institutional and individual investors using them to implement many of their investment strategies. The data on this page tracks gold held in physical form by open-ended ETFs and other products such as close-end funds, and mutual funds. Most funds included in this list are fully backed by physical gold. While a few funds allow exposure to gold through other holdings such as cash or derivatives, we only monitor those investing at least 90 per cent through physical gold and appropriately adjust their reported assets to estimate physical holdings only. 

Similarly, the data only estimates the corresponding gold holdings of ETFs that include other precious metals For funds that include physical holdings of multiple precious metals, the data estimates only the corresponding gold holdings contained within them.

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