ETF Monthly commentary

Gold-backed ETF holdings made new all-time highs in January

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January Highlights

Global gold-backed ETFs and similar products added 61.7 tonnes(t), or net inflows of US$3.1bn, in January across nearly all regions, boosting holdings to new, all-time highs of 2,947t.1 Combined with a gold price increase of nearly 5%, assets under management (AUM) grew 8% in US dollars during the month.

ETF flows 1

ETF flows chart

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

Regional overview

European funds led regional inflows (+33t, US$1.7bn, 2.4% AUM), originating mainly from the UK (+21t, US$1.1bn, 3.5%) ahead of Brexit. North American funds added 2% to assets (+29t, US$1.4bn), as coronavirus uncertainty drove inflows into safe havens. Asian funds finished the month relatively flat, losing 1.2t (US$57mn, 1.4%), while funds in other regions grew 1.8%, adding 0.7t and US$41mn.

Price performance

Gold reached new, seven-year highs of US$1,584/oz and continues to make all-time highs in many global currencies. One of the best performing broader asset classes in January (+4.6%), it outpaced global equity markets and commodities as a whole. China oil demand concerns significantly hurt oil prices — WTI was down 15% — the worst monthly performance in over a year. This drove the overall Bloomberg Commodity Index 7% lower. This is a clear example of gold’s ability to separate itself from the broader commodity complex.

Demand

As we highlighted in our 2019 Gold Demand Trends report, gold-backed ETF inflows alongside central bank purchases were a large driver of global gold demand in 2019, despite decreased jewellery and bar and coin demand — the result of higher gold prices. Trading volumes and futures open interest continued to expand in January. Trading volumes averaged US$181bn a day, an increase of 25% y-o-y, while futures open interest increased 10% to US$132bn. COMEX net longs4 remain very close to the all-time highs reached late last year, and well above long-term averages.

2020 Outlook

As highlighted in our 2020 Outlook, we expect market risk and economic growth interaction to impact gold prices this year. Specifically, financial uncertainty, lower interest rates, weakening global economic growth and increased gold price volatility could occur. The uncertainty brought about by the coronavirus and its potential impact on public safety and economic growth could be added to the list.

Global rates fell sharply in January, largely the result of market concerns. Central bank expectations have shifted in recent weeks. At the end of 2019 there was a 75% expected probability of a single US rate cut in 2020. Last week, this expectation ballooned to nearly two cuts in 2020. Our research suggests either shift could be beneficial for the price of gold. The shift from a hawkish or neutral stance to a dovish one has historically led gold to outperform – The impact of monetary policy on gold. Additionally, there appears to be a positive impact of lower rates on gold prices, as well as the potential for additional gold exposure (potentially replacing bonds) in a low-rate environment. And with over 90% of sovereign debt trading with negative real rates, the opportunity cost of investing in gold has improved.

Regional flows2

North American and European funds drove inflows in January

  • Holdings in European funds increased by 33t (US$1.7bn, 2.4% AUM)
  • North American funds had inflows of 29t (US$1.4bn, 1.9%)
  • Funds listed in Asia were nearly flat, losing 1.2t (US$57mn, 1.4%)
  • Other regions had marginal inflows of 0.7t (US$41mn, 1.8%).

Individual flows

SPDR® Gold Shares and iShares Gold Trust collectively represented nearly half the global inflows

  • In North America, iShares Gold Trust led inflows in the region (+11.8t, US$597mn, 3.4%), followed by SPDR® Gold Shares which added 10.0t (US$509mn, 1.2%), and each low-cost gold-backed ETF in the US grew holdings by at least 5%
  • Three UK-based funds led European funds: iShares Physical led global inflows, adding 17.2t (US$864mn, 12.3%), Invesco Physical added 4.7t (US$246mn, 3.4%) and Gold Bullion Securities added 3.9t (US$201mn, 5.2%). WisdomTree Physical Gold had the only meaningful global outflows, losing 6t (US$299mn, 4.2%), a continued trend which could be a shift to similar funds in the region with lower expense ratios
  • Guotai Gold in China lost 1.7t or 55% of its assets.

Long-term trends

Gold-backed ETFs added 2% in the first month of 2020

  • Global gold-backed ETFs AUM is less than 2% away from the all-time highs of 2012 when the price of gold was 11% higher
  • UK-based funds continue to gain regional and global market share, now representing 44% of European assets and 21% of global assets
  • Low-cost gold-backed ETFs in the US have seen positive flows for 19 of the past 20 months and have increased their collective holdings by 220%.3

Footnotes

  1. We regularly review the global gold-backed ETF universe and adjust the list of funds and holdings based on newly available data and information. The recent review yielded a Swiss-based ETC UBS ETF Gold, which was not on the prior list. This fund has been added and historical data on it has been updated; this yielded an increase of 44.9 tonnes of total global holdings.

  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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