Gold ETFs maintain safe haven status as investors short European equities

Sep 7th, 2016 | By | Category: Commodities

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London-based ETF Securities has reported that investors purchased $63.2m of its gold-based exchange-traded products during the week ended 2 September 2016, while inflows into short German and Italian equity ETPs surged to their highest level in 11 and 15 weeks respectively. The strong net inflows reinforce gold’s status as a safe haven asset as investors appear to be positioning themselves cautiously ahead of an eventful economic week.

Gold maintains safe haven status as investors turn to short European equity ETFs

ETF Securities has reported that investors have channelled $63.2m into their gold ETPs in the week ended 2 September 2016 to position cautiously ahead of the ECB’s meeting on Thursday.

ETF Securities writes: “The European Central Bank meeting on Thursday remains top of the agenda with a new set of staff projections on inflation and GDP to be released. The market will be poised for any clues about an extension of the Asset Purchase Programme beyond March 2017 or any tweaks to eligibility criteria for government bond purchases in future policy meetings.”

Investors withdrew $11.0m and $5.0m from the firm’s global equity ETFs and European ETFs  respectively during the week, while the Gold ETP purchases mark the seventh week of positive net inflows with the firm.

As of 7 September 2016 the price of an ounce of gold was $1,352.40, marking a significant gain of 28.8% from its multi-year low of $1049.60 on 11 December 2015. Its rally stumbled in August but has picked up once again following the release of economic indicators below analysts’ mean expectations.

The report reads: “After declining 3.1% in August, gold prices found some respite last week following the release of weaker than expected non-farm payrolls data. This further complicates the decision of the Federal Reserve that would need to weigh the impact of the weaker jobs data and ISM manufacturing figures ahead of its next interest rate meeting in September. According to the Fed funds futures, the probability of a rate hike in September has decreased considerably to 26% from 34%. We continue to hold onto our view that the Fed will raise rates this year. However, the latest data releases suggest this is more likely in December than this month.”

ETF Securities offers the ETFS Physical Gold (LON: PHAU) which currently has $6.4bn in assets under management (AUM). PHAU is backed by physical allocated gold held by HSBC Bank. It is designed to offer security holders a simple, cost-efficient and secure way to access the gold market by providing a return equivalent to the movements in the gold spot price less the total expense ratio (TER) of 0.39%.

The Source Physical Gold ETC (LON: SGLD) provides the performance of London Gold Market PM Fixing Price in USD. Each Gold P-ETC is a certificate which is secured by gold bullion held in JP Morgan Chase Bank’s London vaults. The ETC has $4.0bn in AUM and a TER of 0.29%.

For those investors who are very bullish on gold WisdomTree offers several gold products, including its Boost Gold ETC (LON: GLD), and several leveraged products such as the Boost Gold 2x Leverage Daily ETP (LON: 2GOL) and the Boost Gold 3x Leverage Daily ETP (LON: 3GOL). These are offered with TERs of 0.25%, 0.44% and 0.99% respectively. Investors should use these products with caution due to their ability to magnify losses as well as gains.

ETF Securities also reports that flows in their gold miner’s equity ETPs turned negative for the first time in 10 weeks. According to the firm: “A marked change in sentiment triggered by the recent decline in gold prices, has led to profit taking. Gold mining stocks are currently worth twice their levels in 2015 are now being perceived as expensive.”

For a discussion on the merits of gold mining ETFs vs those of physical gold ETPs, investors may wish to read our related article “Should investors look at gold mining ETFs over gold ETPs”, where Danny Dolan, CEO China Post Global (UK) shares his views on the matter.

The ETFS DAXglobal Gold Mining GO UCITS ETF (LON: AUCO) tracks the DAXglobal Gold Miners USD Index. It is up 98.3% year-to-date. The fund has $110m in AUM and a TER of 0.65%.

Investors can also gain access to gold mining equities through the VanEck Vectors Gold Miners UCITS ETF (LON: GDX), which provides exposure to gold producers with market capitalizations greater than $750m, and the VanEck Vectors Junior Gold Miners UCITS ETF (LON: GDXJ) which provides targeted exposure to the small-cap miner segment of the market. The funds track the NYSE Arca Gold Miners Index and the MVIS Global Junior Gold Miners Index respectively. The TERs of GDX and GDXJ are 0.52% and 0.56% respectively.

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