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Gold ETF investment continued rising in January

Fri Feb 07 2020


Global gold-back exchange-traded funds (ETFs) reached a new all-time high in January, at 2 947 t.


ETFs and similar products added 61 t, or net inflows of $3.1-billion, in January.


European funds led regional inflows, adding 31 t, or $1.7-billion, while North American funds added 29 t, or $1.4-billion.


Coronavirus uncertainties have caused outflows in Asia, with the region losing 1.2 t, or $57-million.


The World Gold Council (WGC) reported this week that with China’s oil demand concerns significantly hurting oil prices – Western Intermediate was down 15%, driving the Bloomberg Commodity Index 7% lower – it shows gold’s ability to separate itself from the broader commodity complex.


The council said gold-backed ETF inflows, alongside central bank purchases, were a big driver of global gold demand in 2019, despite lower jewellery and bar and coin demand.


The WGC expects market risk and economic growth interaction to impact on gold prices this year. Specifically, financial uncertainty, lower interest rates, weakening global economic growth and increased gold price volatility are expected to occur.


“The uncertainty brought about by the coronavirus and its potential impact on public safety and economic growth could be added to the list,” the WGC stated.


Global rates fell sharply in January, largely owing to market concerns. Central bank expectations shifted in recent weeks. At the end of 2019 there was a 75% expected probability of a single US rate cut this year. Last week, this expectation ballooned to nearly two cuts in 2020.


“Our research suggests either shift could be beneficial for the price of gold – which was at a seven-year high of $1 584/oz in January. The shift from a hawkish or neutral stance to a dovish one has historically led gold to outperform – the impact of monetary policy on gold.


“Additionally, there appears to be a positive impact of lower rates on gold prices, as well as the potential for additional gold exposure (potentially replacing bonds) in a low-rate environment. And with over 90% of sovereign debt trading with negative real rates, the opportunity cost of investing in gold has improved,” the council concluded.