In terms of performance and inflows, gold ETFs, including the SPDR Gold MiniShares (NYSEArca: GLDM), SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEARCA: IAU) and others, enjoyed stellar runs in 2019.
With geopolitical tensions between the U.S. and Iran running high and interest rates poised to remain low throughout many of the world’s largest economies, bullion-backed ETFs could deliver more upside for investors in 2020.
“Global gold-backed ETFs and similar products had US$19.2bn, or 400 tonnes(t), of net inflows* in 2019 in almost all countries, after holdings rebounded in December,” said the World Gold Council (WGC) in a note out Wednesday. “Collective ETF holdings reached all-time highs of ~2,900t in the fourth quarter.”
Market participants turned to gold toward the end of 2019 as a potential hedge against economic and political uncertainty, especially after U.S. equities rallied toward record highs. The most recent rally may be attributed to rising tensions between Tehran and Washington after President Trump reiterated threats to strike Iran if things escalate between the two countries and as markets waited on the inevitable retaliation to the death of Major General Qassem Soleimani.
Going With Gold
“North American funds led regional inflows in 2019, adding 206t (US$10.1bn, 14.4% AUM) as growing geopolitical tensions and the first Federal Reserve rate cuts in a decade fuelled market uncertainty,” according to the WGC. “European funds experienced inflows of 188t (US$8.8bn, 13.6%) driven primarily by UK-based funds, which added 91t (US$4.1bn, 14.5%) on the heels of ongoing Brexit concerns. Asian funds finished the year relatively flat, losing 0.1t (US$12mn, 0.3%). Funds in other regions grew 16.3%, adding 6.3t and US$311mn, with most of the growth coming from Australian-listed funds.”
The current environment could be favorable for gold, particularly if tensions in the Middle East don’t ebb over the near-term.
Gold has been a go-to safe store of wealth during periods of geopolitical and economic turmoil. For example, Jeffrey Currie, head of commodities research at Goldman Sachs, pointed out that the precious metal performed well during both the Gulf Wars and following the September 11 attacks in 2001.
“Looking ahead, many of gold’s 2019 geopolitical, market and economic drivers could continue into 2020,” said the WGC. “While expectations for future US Federal Reserve interest rate cuts have fallen, continued Fed intervention in the repo market has led some to consider this a form of quantitative easing through liquidity injection.”
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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.