Despite improvements in the equities markets and improved risk-on sentiment, gold and related ETFs continued to strengthen and attract greater inflows in the new year.
According to the World Gold Council, the price of gold rose 3.5% in January while global gold-backed ETFs marked a fourth consecutive month of positive inflows, hitting the highest level of total holding since March 2013.
For example, the SPDR Gold Shares (NYSEArca: GLD), the largest physically backed gold-related ETF on the market, increased 2.5% year-to-date as Comex gold futures rose to $1,311 per ounce, and the gold ETF also attracted $1 billion in net inflows so far this year.
Holdings in global gold backed ETFs and similar products rose by 72 tonnes to 2,513 tonnes in January, bringing in $3.1 billion in inflows.
“Global gold-backed ETF holdings have grown 6% over the past two months, driven by market uncertainty and a shift in sentiment that drove the price of gold 3.5% higher in January alone,” according to the World Gold Council.
Flows into gold ETFs over January were positive across North America, Europe and Asia, with North American funds leading the global inflows as momentum investors turned to the most liquid U.S.-listed ETFs while others looked to the cheapest ETF options.
“We believe this is linked to strategic allocations. Brexit uncertainty was a primary driver of investment demand in the UK and Europe,” the World Gold Council said.
Finding Safety in Gold
While global equities have bounced back off the Christmas Eve lows and finished the month up around 7% on average, marking their best monthly start of the year since 2003, investors remain cautious of the future outlook and continued to find safety in gold.
“Market uncertainty remains a concern, especially as the impact of the US Government shutdown is yet to be assessed, Brexit is far from being resolved and trade negotiations continue. In addition, the Fed has signaled a ‘wait and see’ approach and other central banks may follow suit. We anticipate this will support gold prices,” the World Gold Council added.
Specifically, the WGC predicts three outcomes in the year ahead: Increased market uncertainty and the expansion of protectionist economic policies will make gold increasingly attractive as a hedge. While gold may face headwinds from higher interest rates and US dollar strength, these effects are expected to be limited as the Fed has signalled a more neutral stance. Structural economic reforms in key gold markets will continue to support demand for gold in jewellery, technology and as means of savings.
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