Although the current coronavirus situation appears to be a sweet spot for equities over the last few weeks, precious metals, including gold and silver have been making a run recently as well, as the global economies are still being ravaged by the pandemic and it’s unclear when they will be fully operational and employment will return to capacity.
Gold futures prices notched a 7.5-year high early on, reaching $1,788.80, in the June Comex futures, while silver prices have also climbed higher, extending to a four-week high today. Despite increasing optimism in the equity markets, as many states in the U.S. are now discussing the next steps in a plan to potentially reopen the country after a period of a peak in the coronavirus pandemic, safe-haven demand continues to bolster appetite for gold, and to a lesser degree silver, as the global economy is still in nebulous territory.
Holdings of gold and silver by exchange-traded funds have ratcheted up so far this month as well, which analysts suggest is also supportive for precious metals since investors typically have longer holding times on ETFs, since they are treated like stock.
Commerzbank analyst Daniel Briesemann pointed out that ETFs tracked by Bloomberg have gathered 77 metric tons of gold since the beginning of April. This data comes after the World Gold Council released findings last week that global ETF holdings increased by 151 tons in March, with total first-quarter holdings rising by 298 tons, the most since 2016.
BMO Capital Markets also noted that allocations of gold by ETFs have rallied for 16 consecutive business days, with the year-to-date increase of more than 10 million ounces.
“The ETF holders hold for the longer term and are probably more interested in portfolio asset allocation than futures holders, who tend to trade in and out [of the market]based on headlines,” said George Gero, managing director with RBC Wealth Management.
“It’s not just an economic and political barometer, but it’s an additional currency, especially in the international investment world, where if you own or live with a currency that is weak, you have to add gold. You’re going to start doing what the central banks have been doing – adding gold.”
Meanwhile, silver ETFs also have been “extremely popular,” climbing by just under 280 tons since the start of the month, Briesemann said.
One sign of the potential longevity of the gold trend is that the most recent positioning data from the Commodity Futures Trading Commission displays a stable net long position for money managers.
“In other words, the latest rise in the gold price has not been driven by speculation … which means it may also prove lasting,” Briesemann said.
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