Gold ETFs added 21% in 2020
According to the July highlights, World Gold Council (WGC) says, Gold-backed ETFs and similar products (gold ETFs) recorded their eighth consecutive month of positive flows, adding 166 tonnes (t) in July – equivalent to US$9.7bn or 4.0% of assets under management (AUM).
Global holdings have once again reached a new all-time high of 3,785t1 and the price of gold hit a record high of US$1,976/oz by the July-end, leaving global AUM standing at $239bn. Global net inflows of 899t (US$49.1bn) to date are considerably higher than previous annual highs, and the trend of inflows has continued in the first few trading days of August as the price of gold has breached US$2,000/oz.
In row looking ahead, WGC expresses that, we often discuss the fundamental drivers of gold as being a function of economic expansion, risk and uncertainty, opportunity cost and momentum. The current market environment highlights the multi-faceted nature of gold price behaviour.
As we noted in our recent Gold Demand Trends: Q2 2020, economic weakness has significantly hurt jewellery, bar and coin and technology demand, which have averaged 86% of total gold demand over the past 10 years. But geopolitical and economic uncertainty remains supportive for gold investment, and with real rates near or at all-time lows globally, the cost of holding gold remains low.
Finally, investment demand and momentum appear to be more than offset the shortfall from the economic weakness side. With the recent demand shift, only 32% of demand came from jewellery, bar and coin and technology in Q2 2020, with the remainder coming from investments – like gold ETFs – and central banks.
When the global economy recovers, and which ‘letter shape recovery’ we ultimately experience, remains unclear. In our Mid-Year Outlook, we noted a growing consensus that the V-shaped recovery may be morphing into a U-shaped recovery, or that we could even experience more of a W-shaped recovery amidst subsequent waves of infections.
At present, COVID cases appear to be resurfacing, not just in the US but in other countries that had earlier appeared to contain the outbreak. The ultimate effect of this is still very much unknown.
The true state of the economy may not be reflected in all places. Record stimuli and easy money by central banks appear to have driven investments in equities higher, despite weak economic indicators. Ultimately, it could be the behaviour of central banks – with their continued expansionary monetary policy – that drives gold higher, as was a large contributor to the multi-year bull market in the price of gold following the Great Financial Crisis and subsequent Quantitative Easing.