More broadly, gold-backed ETFs added 13% to their holdings over the past three months driven mainly by the decrease in global rates that has led to a slight yield curve inversion in the US 2y/10y Treasury curve—an inverted curve has historically preceded recessions (see Mid-year gold outlook 2019), as well as continuing geopolitical tensions between the US and China. As the gold price in US dollars increased by an additional 7% in August, global assets under management (AUM) rose 12% to US$134bn.
North America funds led August’s flows, adding 78t (US$3.8bn, 5.5% of AUM), surpassing Europe as the region with the most inflows in 2019. Inflows were driven primarily by SPDR® Gold Shares (+55t, US$2.7bn, 7%) and iShares Gold Trust (+18t, US$897mn, 6.3%). Low-cost gold-backed ETFs‡ continued to grow, accumulating 2.3t during the month, bringing their joint holdings to an all-time high of 58t, worth US$2.8bn.
European-listed funds brought in 33t (US$1.7bn, 2.8%), mainly via the UK as the pound continued to weaken and the probability of a “No-deal Brexit” became highly likely. Germany auctioned the first-ever 30-yr negative nominal-yielding bond which highlights the impact rates are having on the price of gold, improving its opportunity cost of holding as its price in euros reached all-time highs.
Funds in Asia reversed year-to-date outflows, adding 9t (US$468mn, 12%). Chinese funds drove inflows, as average daily gold trading volume on the Shanghai Futures Exchange (SHFE) increased to over US$20bn, well above the y-t-d average of US$8bn and the 2018 average of US$3bn. Trading volume of Au(T+D)—the margin-traded gold contract on the Shanghai Gold Exchange (SGE) reached 2,507t in August, the highest in its history.
From a currency perspective, the US dollar closed August near y-t-d highs, despite deteriorating economic conditions and market implications of additional central bank rate cuts this year. Gold is now at all-time highs in every major G10 currency except the US dollar and Swiss franc. It is nearly at an all-time high in Chinese renminbi.
Positioning through futures net longs3 in COMEX closed the month at all-time highs of 1,124t tonnes. Global gold trade volumes continued to surge and averaged US$219bn a day – 92% above their 2018 levels – through over-the-counter products, futures contracts and ETFs (see trading volumes). Implied and realised volatility trended higher and remain at three-year highs and put/call skew remains at extreme levels which suggests investors were willing to pay more for the option to buy gold in the future than to sell – highlighting continued bullish sentiment.
Regional flows 1
North American funds added 6% to its holdings in August
- North American funds had inflows of 78t (US$3.8bn, 5.5% AUM)
- Holdings in European funds rose by 33t (US$1.7bn, 2.8%)
- Funds listed in Asia increased by 9t (US$468mn, 12%)
- Other regions had inflows of 2t (US$80mn, 4.9%).
SPDR® Gold Shares and iShares Gold Trust had combined inflows of US$3.6bn
- In North America, SPDR® Gold Shares added 55t (US$2.7bn, 7%), while iShares Gold Trust added 18t (US$897mn, 6.3%) and low-cost gold-backed ETFs‡ added US$111mn or 4% of assets
- European inflows were led by two UK funds: three of the top 10 global funds were from the UK – including Invesco Physical Gold, which added 9.3t (US$434mn, 6.8%) and iShares Physical Gold, which added 9.3t (US$441mn, 7.5%) during the month.
- Flows in China were led by Huaan Yifu, which grew by 5.4t (US$268mn, 31%).
Long term trends
Global gold-backed ETFs have increased by 10.4% so far in 2019
- Global gold-backed ETFs added 292t (US$14.0bn, 10.4%) y-t-d, driven by strong inflows in the past three months
- European funds have grown consistently this year, seeing positive flows in all months except April and UK-based fund holdings are at all-time highs, reaching 577t or 21% of global gold-backed ETF assets in August
- Strong inflows in North American-listed funds over the past three months have increased the regions’ contribution to 2019 growth – as of end August, North America added 152t compared to 139t in Europe
- Low-cost gold-backed ETFs3 in the US have seen positive flows for 14 of the past 15 months, and have increased their collective holdings by 37% so far this year as both gold holdings and the gold price have risen
- Asian-listed funds have reversed strong early-year outflows and now have small inflows on the year, following renewed interest for gold investing in China.