ETF gold holdings set yet another record high in February, according to the latest data from the World Gold Council.
Global gold-backed added another 84.5 tons of gold last month, boosting holdings to an all-time high of 3,033 tons.
Coupled with an increase in the price of gold of nearly 2%, assets under management grew 4.4% in US dollars in February. That tops the previous September 2012 record high when the price of gold was about 10% higher.
The WGC highlighted two significant trends. First, there is strong global growth in funds based outside of the US and second, US investors have not yet increased their gold allocations as much as they did in 2012.
There were strong inflows of golds into funds in all regions. North American funds let the way, adding 42 tons of gold. European funds saw inflows of 33 tons. Asian funds, led by strong buying in China, added 8.7 tons. Funds in other regions, including Australia, added 0.8 tons.
So far this year, ETFs have upped their gold holdings by 5%. Over the last 12 months, asset holdings in gold-backed funds have grown by nearly 50%.
The World Gold Council says the dynamics look good for strong demand for gold to continue moving forward.
Multiple drivers continue to support the demand for gold moving forward. US Treasuries have been the recipient of risk-off flows. The US 10-year and 30-year bond rates continue to hit all-time lows, improving the opportunity cost of holding gold. We have found that lower rates have a positive impact on gold prices and offer the opportunity for additional gold exposure (potentially replacing bonds) in a low-rate environment. Additionally, the Federal Reserve made a surprise 50bps rate cut in an attempt to ease concerns about the coronavirus effects. Futures in the US are pricing in a total of 100bps of cuts in 2020, which would take the target rate down to 50-75bps. The impact of monetary policy on gold highlights how gold tends to outperform during easing cycles.”
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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