With endless amounts of quantitative easing and trillions of dollars in newly minted money, the stage for gold has been set with a long list of international and now national geopolitical risk. Gold may have backed off the $1,750 per ounce level, but financial investors have been plowing a vast number of funds into gold-backed exchange-traded funds (ETFs).

According to data from the World Gold Council, May marked another month of positive fund flows into these gold-backed ETFs. In fact, the council’s report showed that ETF inflows from January through May of 2020 managed to outpace records for any entire calendar year, as those now have a record of $195 billion in assets under management.

While investors and gold bugs alike may be focused on all the positive numbers, there is a stark issue to consider that the World Gold Council may not want to bring up regarding historic prices nearing $1,800 and how it pertains to the months ahead in 2020.

The net inflows in May were up 4.3% at $8.5 billion. Year-to-date inflows were $33.7 billion (623 tonnes) and managed to surpass the record 591 tonnes purchased for the entire year of 2009. As a reminder, 2009 was the year that the U.S. economy and elsewhere had a full year of 0% interest rates, and it was the year that many of the financial stimulus and asset buying was acting as quantitative easing. For a comparison to the present time, note that the amount of fiscal stimulus and financial support in the modern quantitative easing already has exceeded in less than 90 days what was done in the entirety of the Great Recession a decade ago.

The price of gold rose by 2.6% in May, to end the month at $1,728 per ounce in U.S. dollar terms. Global holdings also have reached a new all-time high of 3,510 tonnes, led by North American funds seeing a 5.6% ($5.6 billion) gain in assets. U.S. ETFs now hold 1,815 tonnes of gold, and that is above the prior record of 1,736 tonnes from 2012. This is all even after an April call by a top Wall Street firm calling for a potential of $3,000 gold price over time.

European funds added 2.9% (about $2.4 billion) in assets under management, and U.K.-based ETFs and funds accounted for about 65% of the entire regional inflows. Asian funds saw a 4.7% inflow into gold funds with China leading the way, and other regions saw inflows of 4.3%.

While the price of gold and the inflows rose, equally important was that the trading volumes in gold also picked up in May. This is a higher quality gain as it implies stronger interest as there was a $164 billion reading in May versus a $140 billion amount in April. Gold ETFs also only saw negative flows on just two trading days over the past two months. The World Gold Council’s view is that gold is attracting buyers from both “risk-on” and from “risk-off” strategies.

Another important statistic to observe after all these inflows is that the aggregated holdings of gold by ETFs now exceed the official gold reserves of every country except for the United States.

While it should always be assumed that the World Gold Council will be bullish, or at least optimistic, for the long term in gold (hence, “Gold” in its name), the historic patterns of gold need to be considered above and beyond what the council mentions here. If the inflows have been that large over the course of 2020, and the SPDR Gold Shares (NYSEARCA: GLD) has been up about 12% year to date with the lion’s share of inflows (and as the largest gold ETF by far), then the recent pullback in gold means that billions of dollars may be taken in profits.

As for the long-term aspects, the hope that gold will rise back up to $1,900, or even above $2,000, per ounce needs to be balanced with consideration of what happened at $1,800. A decade ago, there was a blow-off top in gold that went well above $1,800 briefly, but after a sharp pullback there was a solid triple-top that acted as a hard ceiling and gold was never able to get past it.

A lot more currency is in circulation in 2020 than a decade ago. China also poses risks that may support gold. And vast quantities of stimulus money has yet to work its way through the entire economy. Either way, that $1,800 level was a critical feature in out 10 charts that can’t be ignored in June.

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