Commodities & Metals

Capital Flows Into Gold ETFs for Seventh Straight Month

While it’s no big surprise that the uncertainty raised in global markets by the coronavirus pandemic has sent investors into cash and other highly liquid assets like gold, the strength of the run is not letting up.

Cash inflows to gold-backed exchange-traded funds (ETFs) rose by 104 metric tons (tonnes) in the month of June, according to the World Gold Council (WGC), pushing total global holdings of the yellow metal to an all-time high of 3,621 tonnes.

For the first half of this year, net global inflows into the funds total 734 tonnes (at a value of $39.5 billion), sharply above the current record 2016 annual inflow of 646 tonnes ($23 billion).

The WGC also notes that first half inflows are “significantly higher than the multi-decade record level of central bank net purchases seen in 2018 and 2019, and could absorb a comparable amount of about 45% of global gold production in H1 2020.”

For the year to date, the United States has added 449.1 tonnes to its gold hoard ($24.5 billion), representing 23.6% of all assets under management (AUM). The French appear to be the most conservative, with a first-half flow of $2 billion, representing about 59% of AUM.

The top acquirers by weight are the SPDR Gold Shares (NYSEARCA: GLD), adding 285.6 tonnes ($15.6 billion), for an increase of nearly 36% in AUM. The iShares Gold Trust (NYSEARCA: IAU) added 95.8 tonnes ($5.2 billion), representing nearly 30% of AUM. Combined, these two funds alone accounted for two-thirds of global inflows in June.

Gold prices closed the month of June at $1,768.10 per ounce, the commodity’s highest price since October 2012, with volatility dipping to around half the 30% levels of March and April. The WGC noted that June’s implied volatility of around 20% indicates “that investors are expecting more short-term movement in the gold price.”

While interest rates remain at the current low levels, the opportunity cost of owning gold also remains low, according to the WGC. The expense ratio for the SPDR Gold Shares ETF is 0.4% and for the iShares Gold Trust just 0.25%.

Given the pessimistic outlook for the global economy, gold, at worst, looks no worse and, at best, could continue a run that’s lifted the price by nearly 19% so far this year.