Gold ETFs attract record inflows in 2020

 

Inflows into gold-backed ETFs have broken all records in 2020, with total holdings reaching an all-time high of 3785 tonnes at the end of July, leaving the value of global assets under management standing at $239 billion. That’s a couple of tons ahead of Germany’s stash. U.S. reserves exceed 8,000 tons.

Global net inflows of 899 tonnes ($49.1 billion) in the year to July are considerably higher than the previous record annual totals and the trend of inflows has continued in the first few trading days of August as the price of gold has breached $2000/oz.

To put these flows and holdings in perspective:

·         ETFs now hold more gold than any one central bank barring the US Treasury.

·         Inflows in 2020 have exceeded the record annual purchases by central banks seen in 2019 of 667t.

·         ETF inflows in the first six months of the year were equivalent to about 40% of new mine supply.

ETF Inflows of last 20 years

There are two principal reasons why ETFs have seen such strong purchases in 2020, both connected to the corona virus.

·         As the global economy tipped into deep recession, falling bond yields – especially negative real US Treasuries’ yields – have driven gold prices higher, encouraging investors to buy gold, sometimes via ETFs.

·         The logistical issues that triggered the dislocation of the COMEX gold futures market from the OTC market centered in London have reduced the attraction of investment on the COMEX futures market, due to increased costs of ownership and higher premiums to the OTC price.

RSBL analysts and investors are so concerned about the global outlook that worldwide holdings in gold-backed exchange-traded funds now stand behind only the official U.S. reserves of bullion after they surpassed Germany’s holdings.

Long term drivers remain intact for gold

 GOLD turned quite bearish over past few days, as the USD surged higher, after losing a lot of ground in the previous weeks. There was not much change in the market sentiment, so the move didn’t come from Gold, but from the USD, since the Buck made some strong gains against all other instruments.

Gold ended a remarkable nine-week rally, as it declined for the first time since June. The yellow metal briefly fell below $1,900 an ounce last Wednesday as stocks neared their all-time closing high and the 10-year Treasury yield jumped on record supply. Wednesday’s $38 billion auction of 10-year government bonds was the largest in U.S. history. The troy ounce of the precious metal closed the week with small losses at $1,940. 

Top gold dealer in India were devastated to see gold dropped to its lowest in over a week and was on its way for a  second straight weekly decline on Friday, as a strong rebound in the dollar and a resurgence in U.S. business activity hurt bullion's shine. 

Prices have witnessed a wave like movement over the week due to 

• weak positioning 

• delayed stimulus package agreement

• a bounce in the U.S. dollar and 

• real rates

Gold reached its life time high but then consolidated last week as news surrounded the onset of corona virus vaccine. Adding to this positive news, were signs of improving global economies as all have entered the unlock phase and reviving towards the path of growth.  Bullions posted consecutive weekly losses for the first time since June. On Monday it headed towards the third decline says RSBL Gold

US markets rallied over Trumps statement of extending support to the economy. 

So, USD index also showed signs of pull back to take out big resistance area at 93.30-93.50. 

Gold prices are quoted lower once more at $1926 an ounce on Tuesday, pressured by a more robust U.S. Dollar. 

This week we have important data releases which might change the momentum for gold- positive or negative would depend on the following numbers- 

• second-quarter GDP data from Germany

• Durable Goods Orders will be featured in the US economic docket

• Jerome Powell, Chair of the Board of Governors of the Federal Reserve System, will be discussing the Fed's monetary policy framework in his opening remarks.

The price of gold consolidated after trading to a fresh record high ($2075) in August, but the macroeconomic environment may keep the precious metal afloat as the Federal Reserve appears to be on track to retain the current policy at the next interest rate decision on September 16 gives relief to top gold dealer in India.

Despite the correction, gold continues to remain bullish over the following drivers-

Inflation- Historically, inflation has been constructive for the gold price. As the purchasing power of the dollar falls, savers and investors may seek other, more reliable stores of value, including the yellow metal.

Debasement of currency-  when a lot of money is printed, the dollar gets devalued and gold rises against the dollar. Gold rallied while debasing the currency as we are printing trillions and trillions of dollars to spur the economy. In the process the dollar comes under pressure and strengthened gold

Interest rates-  Falling real yields and a weakening USD have seen investor demand surge. We see this demand remaining strong for the foreseeable future amid a challenging macro backdrop. The expansion of central banks' balance sheets shows no sign of abating, while US-China tensions escalate. 

This should see interest rates remain low, leaving further upside to gold prices. It’s important to keep in mind, though, that the metal’s long-term drivers remain intact assures RSBL Gold. We have unprecedented monetary and fiscal stimulus, with more potentially on the way.