The SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and other gold ETFs delivered solid first-quarter performances even as demand for bullion dipped in the first three months of the year.
“Gold demand of 973.5t was the lowest Q1 since 2008. The main cause was a fall in investment demand for gold bars and gold-backed ETFs, partly due to range-bound gold prices,” according to the World Gold Council (WGC).
GLD is the largest physically backed gold ETF on the market, providing investors exposure to gold price movement in an easy-to-use investment vehicle. The ETF is backed by physical gold bars stored in London vaults. The gold trust currently holds about 27.2 million ounces of gold, so each SDPR Gold Shares represents fractional ownership of the underlying gold.
As the dollar has strengthened, GLD and other gold ETFs have recently given back some gains and are now flat on a year-to-date basis.
The Demand Picture for Gold
“Jewellery demand was steady at 487.7t, as growth in China and the US compensated for weaker Indian demand. Central banks bought 116.5t of gold (+42% y-o-y),” said the WGC. “Technology demand extended its recent upward trend, growing 4% y-o-y to 82.1t. The total supply of gold increased by 3% to 1,063.5t, primarily due to a modest increase in producer hedging. Mine production was fractionally higher at 770t.”
The current environment, characterized by economic growth and heightened inflation expectations, provides an ideal backdrop for investors to consider the benefits of real assets.
Related: Biggest Gold ETF Nets $1B in 2018 Inflows
However, reluctance exists due to the ambiguity of the real assets label and also, concerns related to market cyclicality and volatility. Investors are also often limited by existing strategies in the marketplace that focus on a specialized area within real assets and lack flexibility to adapt to changing market conditions.
“ETFs saw a fifth consecutive quarter of inflows. Holdings grew 32.4t, due to growth in US-listed funds. Q1 investment was mixed, with rising interest rates on the one hand and a sharp spike in stock market volatility on the other,” according to the WGC.
Some market observers believe support for gold is firm at $1,300. The recent safe-haven buying could help gold maintain its current levels as more investors try to diversify their core portfolio positions in more volatile markets.
For more information on the gold market, visit our gold category.
Tom Lydon’s clients own shares of GLD.