Market Update: European ETPs reach record highs

Sectors: Market insights, Investment

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Since the start of 2016, assets in European gold-backed exchange traded products (ETPs) have grown rapidly, hitting a record high of 1,121.4t (US$48bn) in Q1 2019. Now accounting for 45% of the global gold-backed ETP market, they have transformed gold investment in Europe. This update summarises the growth in AUM since 2016, the factors behind it, and the outlook for European gold-backed ETPs.

Stellar growth since 2016

Since their emergence in 2003, gold-backed ETPs (exchange-traded products) have transformed the European gold investment market. At the end of 2012, when the gold price hit a record high around €1,400/oz, assets under management (AUM) were just shy of 1,000t (~US$50bn).

European gold-backed ETP AUM

European gold-backed ETP AUM

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

*Other includes Italy, Russia and Liechtenstein

 

After falling back between 2012-2015, as the gold price came off its highs, inflows into European gold-backed ETPs surged by an annual record of 281t in 2016. The value-eroding negative yield environment, as well as spate of political worries, not least around Brexit, underpinned the flight to gold.

This positive momentum has proven to be long-lasting. Significant inflows of 149.7t (US$6.1bn) and 96.8t (US$3.9bn) were recorded in 2017 and 2018 respectively. AUM in European gold-backed ETPs grew to 1,097t by the end of 2018, hitting multiple record highs in the process. They now account for 45% of global AUM.

Investors face uncertainty

There are three broad factors which explain this surge in demand for gold-backed ETPs in Europe:

  • Loose monetary policy and negative yields. The warning lights have been flashing for some time: the global and European economy is slowing.
  • Geopolitical uncertainty. Political uncertainty across the continent is also front and centre of investors’ minds.
  • Financial market performance and volatility. Over the past three years, European equity market performance has significantly lagged that of other major western markets

Looking ahead, it’s likely these factors will underpin demand in 2019 and beyond.

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