Gold ETFs record strong inflows amid coronavirus fears

Mar 5th, 2020 | By | Category: Commodities

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Gold ETFs listed globally experienced net inflows of $4.9 billion in February, increasing their collective holdings by 84.5 tonnes(t) to reach a new all-time high of 3,033t, according to data from the World Gold Council.

Gold ETFs record strong inflows amid coronavirus fears

Gold ETFs benefited from a flight to safety as uncertainty grew over the economic cost of the coronavirus outbreak.

Market uncertainty surrounding the potential impact of the coronavirus outbreak on the global economy drove strong inflows to all regions during the month.

North American gold ETFs gained $2.3bn (42t; 2.9% AUM) during February.

The two largest US-listed gold ETFs – the SPDR Gold Shares (GLD US) and iShares Gold Trust (IAU US) – added $1.6bn (31.0t; 3.5% AUM) and $313 million (5.9t; 1.7% AUM) respectively.

Amongst low-cost gold ETFs, the SPDR Gold MiniShares (GLDM US) led the field with inflows of $108m (8.5% AUM), while the Aberdeen Standard Physical Gold Shares ETF (SGOL US) grew by $82m (6% AUM).

Demand for gold ETFs was equally strong in Europe with the region recording net inflows of $2.0bn (33t; 2.8% AUM) during the month. The Xtrackers Physical Gold (XGLD LN) experienced bumper net inflows of $511m (9.7t; 14.5% AUM); however, the euro-hedged version of the ETC suffered outflows of $313m (6.5t; 11.6% AUM).

Additionally, the iShares Physical Gold (SGLN LN), Amundi Physical Gold (GOLD FP), and WisdomTree Physical Gold (PHAU LN) each added between $230m and $300m in net inflows.

Within Asia, strong inflows of $425m (8.7t; 9.5% AUM) were primarily driven by Chinese investors. The Shanghai-listed Huaan Yifu Gold (518880 CH) gathered nearly a quarter of total net inflows with $101m (2.0t; 9.4% AUM).

Gold ETFs in other regions grew by $132m (0.8t; 6% AUM).

Combined with a gold price increase of nearly 2%, assets under management grew 4.4% in US dollars during the month, surpassing the previous record high set in September 2012. At that time, the gold price was 10% higher than current levels, highlighting two trends: the robust growth in gold ETFs outside of the US, and that US investors have not yet increased their gold allocations to 2012 levels.

Gold price outlook

The World Gold Council highlights several factors that it believes will continue to support the demand for gold.

Strong risk-off flows have driven the yields on 10-year and 30-year US Treasuries to all-time lows, improving the opportunity cost of holding gold.

Additionally, the Federal Reserve made a surprise 50 basis point rate cut in an attempt to ease concerns about the coronavirus effects. Futures in the US are now pricing in a total of 100bps of cuts in 2020 which would take the target rate down to 50-75bps. Gold has historically outperformed during periods of monetary easing.

Market risk and slowing economic growth are likely to continue impacting gold in 2020, particularly as the financial effects of the coronavirus are realized while continuing purchases from central banks are expected to add further support to the gold price.

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