The SPDR Gold Shares (NYSEArca: GLD) and the SPDR Gold MiniShares Trust (NYSEArca: GLDM) are among the bullion-backed ETFs that added new assets at a rapid pace in the first six months of 2020.
Gold certainly had its run during the uncertainty of the Covid-19 pandemic, but as more economies around the world look to return to normal, the precious metal could lose its luster for the rest of 2020. That, however, could pose a buying opportunity for investors looking for gold exposure.
“Gold-backed ETFs (gold ETFs) recorded their seventh consecutive month of positive flows, adding 104 tonnes (t) in June – equivalent to US$5.6bn or 2.7% of assets under management (AUM) – taking global holdings to new all-time highs of 3,621t,” said the World Gold Council (WGC) in a note out Tuesday.
Golden Run
The large inflows came at the expense of a sharp decline in gold jewelry demand over the first three months of the year. Central banks continued to buy gold, albeit at a slower pace. Additionally, gains in a developed market bar and coin demand helped offset weakness in Asia.
In the first six months of the year, “global net inflows to 734t (US$39.5bn), significantly above the highest level of annual inflows, both in tonnage terms (646t in 2009) and US-dollar value (US$23bn in 2016). To put this strength of demand into context, H1 inflows are also 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,” according to the WGC.
If inflation is to spike as a direct result of these aggressive loose monetary policies, gold can also benefit as a way to help investors safeguard their purchasing power. Looking at average annualized returns during various inflationary periods, gold showed an annualized return of 8.4% when inflation was below 2% and an annualized return of 16.2% when inflation was above 5%.
Even a few days of outflows from gold ETFs last month aren’t casting a pall over the asset class.
“In June, global gold ETFs registered three consecutive days of outflows near the beginning of the month – the first consecutive daily declines since March – before regaining momentum. All regions saw net inflows during the month, with North American funds accounting for the lion’s share,” notes the WGC.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
