ETF Monthly commentary

Record gold-backed ETF inflows of 877t in 2020 took holdings to all-time highs

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2020 Highlights

By any measure, gold-backed ETFs and similar products (gold ETFs) had a remarkable year in 2020. Globally, gold ETFs had record annual net inflows of US$47.9bn, or 877 tonnes(t), collectively increasing their gold holdings by over a third, reaching all-time highs in tonnage (3,752t).8   Notably, all regions registered significant growth in assets under management (AUM)1  – more than the foreign reserve holdings of any central banks except for the US and only 15% below the portion of reserves that the US stores at Fort Knox.2   

While the ultra-low interest rate environment drove inflows in January and February, the global spread and severity of the COVID-19 pandemic from March onwards boosted interest in gold. The heightened risk environment, fiscal and monetary responses to the economic impact of the pandemic, and gold price momentum continued to drive inflows well into H2. The pace of inflows slowed after the gold price hit a new record high – above US$2,000/oz in early August – before correcting to the US$1,900/oz level.

The strength in demand for gold ETFs was further underscored when compared against other forms of physical gold investment. In response to the pandemic, demand for bars and coins was mixed: strength in western markets and weakness in eastern markets (before recovering in Q3). As a result, over the first three quarters of 2020, gold ETFs accounted for almost two-thirds of total investment demand. This is significantly higher than any previous full year. Gold ETF demand was also equivalent to a quarter of the average annual gold mine production over the past five years.3   

But as investors reduced hedges and increased risk-asset exposure amid positive sentiment following the US election and the announcement of successful COVID-19 vaccines, there were sizeable outflows of 109t in November. And while outflows continued into December, they slowed considerably and were modest by comparison, at 40t.

 

ETF flows chart

Data as of

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

Regional overview – Q4 and December 2020

In contrast to the first three quarters of 2020, which saw a cumulative 1,007t added to global AUM, Q4 had net outflows of 130t. Funds listed in North America (-86t, -US$5.0bn, -4%) and Europe (-35t, 
-US$2.3bn, -2%) accounted for the bulk of the outflows. Funds in Asia lost 4.7t (-US$255mn, -3%), while outflows from funds listed in other regions (-4.4t, -US$257mn, -7%) were also notable.

Outflows slowed considerably in December. North American (-1.2%) and European (-0.8%) funds again saw the largest level of outflows, although Asian funds experienced the largest decline relative to their size (-1.7%). Total outflows were 40t (-US$2.2bn, -1.0%).
 

Price performance and trading volumes 2020

Gold rose 25% during 2020, hitting a historical high of US$2,067.15/oz on 6 August. Despite dropping 12% in March, when markets were rocked by the onset of the COVID-19 pandemic, gold recovered to finish the year among the best-performing assets, despite many stock indices reaching or surpassing all-time highs. Gold’s volatility during the year was also higher, with annualised volatility at 20%, the highest level since 2013 and significantly above the longer-term average of around 16%. However, the increase in gold’s volatility should be viewed in the context of the volatility of all assets. Most assets saw volatility rise last year. For example, the volatility of the S&P 500 climbed to a whopping 32%, almost double its long-term average of 18%.4 

Gold trading volumes also increased. The 2020 daily volume average of US$182.7bn per day was significantly above the 2019 average of US$145.7bn. Even gold’s lowest trading volumes for the year – which occurred during April or the relatively muted December – were still quite robust, trading on average US$139.9bn and US$143.2bn respectively. 

Net long positioning of COMEX gold futures – as reported in the Commitment of Traders (COT) – fell to an annual low of 716t in November but recovered to 816t by year end. This was the highest level since September, below the annual average (873t) but significantly above the long-term 10-year average of 529t.  Generally speaking, net longs were higher throughout the year because of positive price momentum, which attracted investors and speculators. We believe net longs did not finish the year at or above the all-time highs of 1,209t, which were seen earlier in the year, because the dislocation of the Comex futures market from the OTC market, which occurred in March, made it more expensive to hold futures compared to other choices like OTC and gold ETFs. Many investors likely migrated futures into OTC or gold ETFs, or likely shifted out of the gold market altogether.

Gold drivers in 2021

As we move into 2021, many of the same drivers of gold demand should continue, such as lower rates and improved opportunity costs, fiscal stimulus, lofty stock valuations, and the economic effects of COVID-19. We will dive deeper into some of these drivers in our upcoming 2021 Gold Outlook.

Regional flows6

Strong inflows across all regions

  • North American funds had inflows of 563t (US$31.9bn, 45% AUM)
  • Holdings in European funds grew by 260t (US$13.3bn, 21%)
  • Funds listed in Asia saw holdings rose by 38t (US$1.9bn, 49%)
  • Other regions had inflows of 16t (US$899mn, 41%).

Individual flows

SPDR® Gold Shares and iShares Gold Trust led global inflows, adding over 50% of total global inflows

  • In North America, SPDR® Gold Shares added 277t (US$15.4bn, 35%), iShares Gold Trust added 165t (US$9.5bn, 54%), followed by SPDR® Gold MiniShares, which rose by 43t (US$2.5bn, 217%)
  • In Europe, UK-listed funds had the largest inflows, led by iShares Physical Gold (91t, US$4.9bn, 70%) and Invesco Physical Gold (84t, US$4.8bn, 67%). However, UK-listed WisdomTree Physical Gold (-26t, -US$1.5bn, -20%) also registered the largest level of outflows. Swiss-listed UBS ETF Gold (-23%) and UK-based Gold Bullion Securities (-6%), as well as German-listed Xtrackers Physical Gold (-28%), also saw sizeable outflows 
  • As fund assets in Asia grew, seven new Chinese funds were listed during the year. 

Long-term trends

Gold ETFs added nearly 231t more assets in 2020 (a total of 877t) than the 2009 record of 646t

  • Despite record-setting inflows in the first 10 months of 2020, inflows turned negative in November and December, although they sharply reversed to begin 2021 
  • Investment demand for gold via ETFs remains strong and a primary driver of overall gold demand
  • North American funds represented nearly two-thirds of global net inflows in 2020
  • Low-cost gold-backed ETFs continue to grow meaningfully, even during the late year, with overall outflows more than doubling over the course of the year. 7

Footnotes

  1. Gold ETF holdings reached intra-year highs in November 2020 with 3,915t, prior to net outflows during November and December.

  2. The US government holds approximately 8,133 tonnes gold, with 4,582 tonnes stored at Fort Knox (see Status Report of U.S. Government Gold Reserve).

  3. Based on global mine production from 2015 to 2019. See the demand and supply section of Goldhub for more details.

  4. Volatility is calculated based on the annualised daily standard deviation moves of each asset since 2000.

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

  6. 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.

  7. 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.

  8. We regularly review the global gold-backed ETF universe and adjust the list of funds and holdings based on newly available data and information.

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