Gold-backed ETFs globally added 40.7 tons of gold in the second quarter of 2021, reversing a trend of significant outflows in Q1.
In 2020, gold-backed ETFs recorded record net inflows of gold. Funds added nearly 231 more tons in 2020 than they did during the previous record year (2009/646 tons). But with declines in the price of gold and investors pivoting to riskier investments as economies improve, gold flowed out of ETFs in the first quarter. That trend reversed in May.
As gold prices rebounded throughout most of the second quarter, flows into gold ETFs followed suit. North American and European funds led the way adding a combined 43.8 tons of gold in Q2.
Funds in Asia recorded small outflows of 1.6 tons in the quarter. Inflows of 2.3 tons in June were not enough to offset heavy losses in May. According to the WGC, “Rising risk appetite and profit-taking amid higher gold prices earlier in the quarter led to some weakness in Asia, but this reversed trend towards the end of the period with investors likely building strategic long exposure to gold as inflationary pressures intensified.”
May was the strongest month in the quarter with gold-backed funds globally adding in 61.3 tons of gold.
June was relatively flat, with net global ETF inflows of 2.9 tons. North American funds recorded inflows of 10.5 tons, and Asian funds added 2.3 tons, but those inflows were offset by a 9.4-ton decline in European fund gold holdings.
Total ETF gold holdings globally stand at 3623.9 tons valued at roughly $205.6 billion. That’s about 284 tons shy of the October 2020 record of 3,908 tons.
Looking ahead, the World Gold Council projects “upside potential” for further gold investment in 2021, given the current macroeconomic environment coupled with anecdotal evidence. The WGC sites two specific factors supporting gold.
- Expectations that central banks will likely maintain an accommodative monetary policy for some time, keeping opportunity costs of holding gold low.
- Current levels of money supply and savings rates in certain developed markets that suggest a higher inflation rate may not just be temporary, reinforcing the need for assets like gold.
Inflows of gold into ETFs are significant in their effect on the world gold market, pushing overall demand higher.
ETFs are backed by physical gold held by the issuer and are traded on the market like stocks. They allow investors to play gold without having to buy full ounces of gold at spot price. Since their purchase is just a number in a computer, they can trade their investment into another stock or cash pretty much whenever they want, even multiple times on the same day. Many speculative investors appreciate this liquidity.
There are good reasons to invest in ETFs, but they aren’t a substitute for owning physical metal. In an overall investment strategy, SchiffGold recommends buying gold bullion first.
When considering gold-backed ETFs, you should always keep in mind that you don’t actually own the gold. Buying the most common ETFs does not entitle you to any actual amount of the precious metal.
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