ETF Monthly commentary

Gold-backed ETFs added 122t or 5% of AUM in August

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August highlights

In August, global gold-backed ETFs and similar products had US$6.0bn of net inflows across all regions, increasing their collective gold holdings by 122t to 2,733t. Total holdings are 59t tonnes or 2% away from all-time highs of 2,791t, which occurred in late 2012 when the price of gold was 9% higher (US$~1,665/oz).

 

ETF monthly flows

Sources: Bloomberg, Company Filings, ICE Benchmark Administration, Shanghai Gold Exchange, World Gold Council; Disclaimer

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%).

Individual flows

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.

Footnotes

  1. Note: We calculate gold-backed ETF flows both in ounces/tonnes of gold and in US dollars because these two metrics are relevant in understanding funds’ performance. The change in tonnes gives a direct measure of how holdings evolve, while the dollar value of flows is a finance industry standard that gives a perspective of how much investment reaches the funds. There are some months where the reported flows measured in tonnes of gold and their dollar-value equivalent seem inconsistent across regions. Both figures are correct. The disparity is due to the interaction between the performance of the gold price intra-month, the direction and movement of the US dollar and the timing of the flows. For example, hypothetically, if European funds were to experience outflows early in the month when the price of gold was low but gained assets later in the month when the price of gold increased, and/or if the euro/dollar currency rate moved meaningfully when there were flows, there might be a discrepancy between tonnage change and flows.

  2. Low-cost US-based gold backed ETFs are defined as exchange traded open-ended funds listed in the US, backed by physical gold, with annual management fees of 20bps or less. At present, these include Aberdeen Physical Swiss Gold Shares, SPDR® Gold MiniShares, Graniteshares Gold Trust, and Perth Mint Physical Gold ETF.

  3. Net longs represent Money Manager and Other Net long positioning in the COMEX futures market.

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