A weakening U.S. dollar and a dicey global economy have turned a lot of investors into gold bugs. Well, maybe not a lot, but certainly lots more than at this time last year.
The price of gold has risen by about 43% in the past 12 months and the amount of gold flowing into gold and gold-backed exchange traded funds (ETFs) has risen for an eighth straight month according to the latest data from the World Gold Council (WGC). Gold settled at nearly $2,050 an ounce on Wednesday and traded briefly above $2,080 an ounce on Thursday.
Cash inflows to gold-backed and gold ETFs rose by 166 metric tons (tonnes) in the month of July according to the WGC, pushing total global holdings of the yellow metal to an all-time high of 3,785 tonnes. For the year to date, net global inflows into the funds total 899 tonnes (at a value of $49.1 billion).
The WGC noted that while the yellow metal trades at all-time highs, the inflation-adjusted high is about 40% higher at $2,800 an ounce.
For the year to date, the United States has added 563.9 tonnes to its gold hoard ($31.4 billion), representing 25.6% of all assets under management (AUM). Only Liechtenstein and Thailand experienced outflows of gold for the year, with each dropping 0.1 tonnes.
The top acquirers by weight are the SPDR Gold Shares (NYSEARCA: GLD), adding 348.6 tonnes ($19.4 billion) for an increase of more than 44% in AUM. The iShares Gold Trust (NYSEARCA: IAU) added 131.4 tonnes ($7.4 billion) representing nearly 42% of AUM. North American ETFs accounted for 75% of global net inflows in July and just these two funds accounted for 61% of all global net inflows for the month.
The COVID-19-caused global economic downturn has caused sales of gold to jewelry markets to decline by almost half in the first six months of this year. Demand from central banks is down by 39% and gold bar/coin investors had cut their investments 17% through June.
The WGC sees gold as a valuable long-term component of an investment portfolio. Current high equity valuations, geopolitical risk, and the uncertainty of the duration of the economic disruption caused by the coronavirus all support keeping gold in an investment portfolio. While interest rates remain at the current low levels, the opportunity cost of owning gold also remains low according to the WGC.