5 November, 2019

Investment doubled y-o-y: exceptionally strong ETF inflows offset weak retail bar and coin demand

  • Investment demand rose 110% y-o-y to reach 408.6t
  • Gold-backed ETF holdings hit a record high in September of 2,855t (US$136bn), surpassing the previous peak in December 2012 of 2,841t
  • Bar and coin demand slumped to an 11-year low in response to high gold prices and weakening economies
Tonnes Q3'18 Q3'19   YoY
Investment 194.4 408.6 110%
Bar & coin 298.2 150.3 -50%
  India 34.4 22.3 -35%
  China 88.0 42.8 -51%
Gold-backed ETFs -103.8 258.2    -


Holdings in gold-backed ETFs hit an all-time high of 2,855.3t in Q3, as investment in global products grew by 258.2t – the highest level of quarterly inflows since Q1 2016. This milestone eclipses the late 2012 peak in holdings, when the gold price was almost US$200/oz higher than recent levels. In value terms, global assets-under-management (AUM) climbed to US$136bn, slightly off recent highs as the gold price dipped below US$1,500/oz at the end of the quarter.


Holdings in global gold-backed ETFs reached a new record in September

Holdings in global gold-backed ETFs reached a new record in September

Sources: Metals Focus, Refinitiv GFMS, World Gold Council; Disclaimer


Overall sentiment towards gold remained positive in Q3. The gold price rally, which began in June, saw the US dollar price reach a six-year high in September. The rally is partly a reflection of ongoing global monetary policy decisions – most notably, the Federal Reserve (Fed) cutting rates and the European Central Bank announcing that it would resume quantitative easing – but also of continued geopolitical uncertainty, a global economic slowdown, and the level of negative-yielding sovereign debt. This positive sentiment was also reinforced by COMEX net longs, which hit all-time highs during September.

Inflows into North American-listed funds accounted for the bulk of the quarter’s growth. Holdings in North American funds grew by 184.9t in Q3 – over 70% of the global total. Strong inflows were seen each month during the quarter as the rising US dollar gold price attracted further investment. This was supported by more accommodative monetary policy, with the Fed opting to cut rates twice in Q3 – by 25 basis points on each occasion – as well as signalling the potential for an additional cut this year. The direction of monetary policy is likely to further influence the gold price, and investor flows, during the remainder of 2019, something covered in our mid-year outlook  and more recently by BNP Paribas in Gold Investor.

European inflows were more diverse, with UK- and German-listed funds leading the way. Holdings in European-listed gold-backed ETFs rose by 55.8t in Q3, bringing overall holdings to a record high of more than 1,290t.

UK-listed funds grew by 28.6t in Q3 as concerns over the direction of Brexit negotiations continued to rattle investors. The ongoing uncertainty surrounding the issue, exemplified by the Supreme Court battle that ended with the ruling that Prime Minister, Boris Johnson, had unlawfully suspended Parliament, only served to weaken the pound further. Facing the growing prospect of a hard Brexit, many UK investors sought safe haven assets.

German investors, fearing that the economy would be dragged into recession by a fall in global industrial output, added a modest 13.1t to German-listed gold-backed ETF holdings. The uncertainty around global growth and trade has taken a toll on Germany’s export-reliant economy. And the outlook remains weak: at the start of October, the ifo Institute’s Joint Economic Forecast for 2019 was revised from 0.8% to 0.5%. Against this backdrop, government bond yields remained rooted in negative territory, reducing the opportunity cost of holding gold. The yield on 10-year bunds continued to fall during July and August, recording a new all-time low of -0.725% at the start of September.

Inflows into gold-backed ETFs in the rest of the world were modest. Asian-listed funds grew by 14.3t in Q3. Chinese funds – primarily Huaan Yifu Gold ETF and Bosera Gold Exchange Trade Open-End Fund ETF – accounted for most of this increase as investors were attracted by the rally in the gold price. By the end of Q3, AUM in Chinese gold-backed ETFs totalled RMB16.9bn or US$2.4bn, marking a new record high. Gold-backed ETFs in other regions added 4t to their holdings, which brought the total to 35t – half of the end-2009 peak.

Bar and coin

Global bar and coin demand halved y-o-y, dropping to 150.3t, its lowest quarterly level since Q1 2008. The y-t-d picture is similarly bleak: cumulative demand in the first three quarters was at its lowest level since 2009. A soaring gold price across multiple currencies has prompted retail investors in many markets to either wait in anticipation of a price dip or sell a portion of their holdings to realise profits. But the weakness in demand is not just price related. Households in some major gold markets, such as China and India, have had their incomes squeezed by a combination of rising inflation and slowing economic growth. 


Y-t-d bar and coin demand lowest since 2009 amid higher prices

Y-t-d bar and coin demand lowest since 2009 amidst higher prices

Sources: Metals Focus, Refinitiv GFMS, World Gold Council; Disclaimer


China’s bar and coin demand fell 51% to 42.8t, its lowest level in three years, as the domestic gold price hit a multi-year high. On 29 August, Au9999, the Shanghai Gold Exchange’s (SGE) physically-backed contract, hit RMB369.2/g, its highest level in eight years. Rather than enter the market at that level, many investors sat back in the hope of a price correction. 

In addition, disposable income is being squeezed. Economic growth in Q3 slowed to 6%, its slowest pace in 27 years, and inflation edged up to 3%, spurred on by the impact of African Swine Flu on the domestic stock of swine.

In contrast to a lacklustre physical market, gold speculation soared during the quarter. While the higher gold prices were unappealing to consumers, some speculative investors saw this as an opportunity. Trading volumes of Au(T+D), the SGE’s margin-traded gold contract, surged to 2,894t in August, creating a new record high as short-term traders bet on higher prices. 

Indian bar and coin demand slumped to its lowest level since Q1 2009. The already high gold price surged even higher in Q3 to reach Rs39,011/10g which, coupled with a faltering economy, pushed retail investment down to 22.3t, a fall of 35% y-o-y. Despite the rapid uptick in the gold price there was limited net selling, with dealers reporting that many investors were holding on to their bars and coins in the expectation of further prices rises.  

Gold demand in India faces increasingly competitive threats from other mainstream investment opportunities. Retail investors’ attention has been captured by equities, with the BSE SENSEX flirting with record highs and y-t-d trading volumes at their highest since 2009. But, more importantly, a well-executed marketing campaign by the Association of Mutual Funds in India (AMFI) has generated sustained inflows into systematic investment plans (investment plans that facilitate regular, fixed savings from as little as Rs500 a month), capturing the minds of India’s millennials.

Thailand, South East Asia’s largest gold market, experienced a rare quarter of net disinvestment in Q3 – its first in ten years. A slowing economy coupled with high dollar gold prices encouraged some investors to liquidate their holdings and lock in some profits. Net disinvestment in Q3 totalled -13.5t, consisting mainly of locally minted bars that were subsequently shipped off to Swiss refineries to be re-refined into higher purity bars for the international market. 

Every market in the Middle East contracted y-o-y for the second consecutive quarter, as consumers shied away from high and rising gold prices and struggled amidst continued economic malaise. Regional demand in Q3 was 17.6t, with Iran accounting for 12.6t. There was one bright spot: policy developments in the UAE may prove to be a boost for the region, as the country looks to enhance its position as a global hub for gold and jewellery trade.

Turkey was unique in Q3 – it was the only market in our dataset where retail investment grew y-o-y. Demand rose 45% to 6.7t. The percentage growth, however, was in comparison to a weak Q3 2018 rather than being due to any genuine strength in underlying retail investment demand. When compared to Q2 2019, demand slumped 32%, as many investors took advantage of the increase in the gold price, which according to the Borsa Istanbul rose to a record high of TRY288.9/g on 29 August. 

European bar and coin demand fell 38.9% in Q3. Y-t-d demand was 108.5t, the lowest level since 2008. Most markets experienced double digit declines as investors took profits off the back of the record high gold price of €45,200/kg, attained on 4 September. The economic and political uncertainty that has spurred European gold-backed ETF inflows has had little effect on retail investment demand. 

Demand in the US was down 2.9t y-o-y, but there were signs of improvement. While demand remained relatively soft, and coins in the secondary market continued to be exported to Germany, dealers reported a healthier two-way market with some investors entering the market on recent price dips. 

Important disclaimers and disclosures [+]Important disclaimers and disclosures [-]