With the U.S. dollar continuing a slide that was present for much of 2017, investors put more money to work with gold-related exchange traded funds, such as the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and other gold-backed exchange traded products, in January, according to new data from the World Gold Council (WGC).
“Gold-backed ETFs added 27.6t (US$4.9 billion AUM) in January, growing assets by 5%,” said the WGC. “Global inflows were dominated by North America, a function of gold prices continuing their late 2017 rally, and the US dollar weakening.”
Gold is also now competing with digital currencies, such as bitcoin, but the WGC reminds investors that gold is very different from cryptocurrencies since the physical precious metal is less volatile, has a more liquid market, trades in an established regulatory framework, has a well understood role in an investment portfolio and has little overlap with cryptocurrencies on many sources of demand and supply. The yellow metal is also an important portfolio diversifier when traditional assets slump.
“US-listed ETFs accounted for 73% of global net inflows in January, reversing the 2017 theme in which European funds dominated net inflows,” according to the WGC.
Gold has enjoyed greater demand in a low interest-rate environment as the hard asset becomes more attractive to investors compared to yield-bearing assets. However, traders lose interest in gold when rates rise since the bullion does not produce a yield. Interest rates remain low in many developed markets and some emerging markets have been rapidly lowering borrowing costs this year.