All regions except Asia saw marginal increases in holdings. Interestingly, by month-end, North American funds had fully reversed the US$2bn in outflows seen earlier in the month. The reversal coincided with a rally in gold, in US dollar terms, which was linked to the Fed’s adoption of a more neutral monetary policy stance. Our recent report The impact of monetary policy on gold finds that, historically, a change in the Fed’s policy from tightening to neutral results in gold increasing meaningfully over the subsequent 12 months.
In March, gold trading volumes increased 15% above the 2018 averages to US$125bn per day. Sentiment and positioning in COMEX futures continued to increase from their lows, as the price of gold moved higher during the second half of the month. However, these levels still remain below historical averages.
US stocks had their strongest quarterly performance in 10 years in Q1, supported in part by a decline in bond yields. However, the extent of the divergence in expectations about the strength of the economy between stock and bond investors is noteworthy. The rebound in stocks have again pushed valuations to historically high levels, signaling confidence by investors. Bond holders appear to have a more pessimistic view of the global economy and warnings signs have emerged in global fixed income markets. For example, German 10-year bund yields turned negative for the first time since 2016, while the US 3-month / 10-yr curve inverted: a phenomenon that almost always precedes a recession in the US.
This decoupling between stock and fixed income markets, combined with US/China trade relations and Brexit uncertainty are some examples of dynamics that continue to worry investors.
Looking forward, we believe that financial market uncertainty, as well as the shift in monetary policy and possibly a range-bound US dollar will support investments in gold (see our 2019 Outlook).
North American funds reversed early month outflows to finish the month with incremental inflows
- North American funds had inflows of 2.5t (US$104mn, 0.2% AUM)
- Holdings in European funds rose fractionally by 0.2t (US$52mn, 0.1%)
- Funds listed in Asia decreased by 1.2t (US$45mn, 1.4%)1
- Other regions were virtually flat, rising by 0.2t (US$9mn, 0.7%)
iShares Gold Trust led global inflows following mid-month strength in gold prices
- In North America, iShares Gold Trust added 2t (US$87mn, 0.7%) followed by SPDR® Gold MiniShares which added 0.5t (US$19mn, 3%)
- European inflows were led by Xtrackers Physical GBP Hedged which added 1.5t (US$64mn, 89%) and Xetra which added 1.5t (US$37mn, 0.45%); ETFS Physical had outflows of 4.6t (US$190mn, 2.7%) and UBS CHF Hedged had outflows of 1.2t (US$49mn, 5.6%)
- In China, Bosera Gold’s unlisted funds reported their quarterly flows and the 930 fund had outflows of 1.4t (US$60mn, 31%) during the quarter; Huaan Yifu had outflows of 1.1t (US$45mn, 4.4%)
ETF holdings have grown 2% in 2019
- Late March inflows appear to resume an upward trend in holdings after a possibly temporary reversal in February; to date, 2019 has collective inflows of 40t (US$1.9bn, 1.8%), driven by strong inflows in January
- Total holdings in tonnes (2,481), remain near levels last seen in early 2013, when the price of gold was 25% higher
- Holdings in UK-based gold-backed ETFs remain near all-time highs, likely driven by the uncertainty surrounding Brexit
- Low-cost ETFs added 22t (~US$878mn) in the past nine months, representing growth of 67%2. These low-cost flows represent all of the net inflows in North America over the same time period