In the mid-1800s, settlers headed west when it came to fulfilling dreams of gold. Fast forward to September 2019, and investors are living those dreams in gold-backed exchange-traded funds (ETFs), according to the latest State Street Global Advisors report.
“Flows into gold-backed ETFs are seeing robust demand beyond what we saw during the volatile Brexit period,” wrote Matthew Bartolini, Head of SPDR Americas Research at State Street Global Advisors. “The chart below shows the historical quarterly fund flow figures into gold-backed ETFs. With $8.79 billion deposited in Q3 of 2019, this ranks second all time. Only during the global financial crisis did gold-backed ETFs accumulate more inflows.”
According to Bartolini, there are two main takeaways regarding these flows into gold-backed ETFs:
1) Investors are seeking out exposures that offer low correlations to stocks and bonds6 to mitigate downside risk in a year marked by noticeable geopolitical unrest, policy uncertainty and calls for an impending recession
2) With a decline in real rates and the aforementioned geopolitical unrest, technical price momentum has been strong for gold, and investors have been tactically seeking out the exposure to generate stronger returns
“With rates likely to stay low and geopolitical unrest unlikely to abate, the demand for gold exposure may continue,” wrote Bartolini. “If Q4 has $1.4 billion of inflows, 2019 could be a record year for gold-backed ETFs, as flows would surpass the 2009 record of $11.8 billion.”
Other highlights of the report:
- Fixed income ETFs have now amassed over $112 billion of inflows YTD – a pace that’s 8% higher than the record-setting haul in 2017;
- Investors deposited nearly $9BN into gold-backed ETFs in Q3 – this quarterly haul represents the second largest ever; only during the global financial crisis did gold-backed ETFs accumulate more inflows;
- The $30BN of inflows for equity ETFs in September marked a sharp reversal from August’s $20 billion of outflows and represents the largest one-month change ($50BN) for equity ETF flows ever;
- With rates continuing to fall, investors increased their exposure to Real Estate ETFs, which led all sectors with $1.3BN of inflows. Health Care ETFs led the pack on the downside, shedding over $1BN during the month.
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