Could Investors Keep Pouring Money into Gold ETFs?



ETF holdings on the rise

Gold ETF investors bought 173.4 tons of gold in 2017, which was 9% higher year-over-year. In 2018 year-to-date, the inflows in gold-backed ETFs have been strong. In times of increased volatility, investors are repositioning their portfolios to include more gold as a volatility hedge. Expectations of a global trade war triggered by President Trump’s import tariffs could lead investors to seek a haven in gold.

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Geopolitical concerns and volatility see increased ETF inflows

According to the World Gold Council (or WGC), gold-backed ETFs saw the highest inflows in more than a year in April. The data showed that the holdings in global gold ETFs rose 72.2 tons to 2,481 tons that month. That’s the second consecutive month of inflows. March saw inflows of 22.5 tons. According to WGC, North American gold ETFs saw the biggest increase of 44 tons. Among ETFs, the world’s largest gold-backed ETF, the SPDR Gold Shares (GLD), saw the biggest increase at 25.1 tons. The iShares Gold Trust (IAU), on the other hand, saw inflows of 17.1 tons.

However, after rising in April, the holdings in gold ETFs have fallen recently. According to Commerzbank, for the week ended May 4, the ETFs saw an outflow of 10.5 tons.

ETF holdings and gold prices

While the current economic macro backdrop has turned increasingly negative for gold prices amid a rising US dollar and bond yields, gold might find some support from physical buying from price-sensitive Asian consumers and ETFs.

Further recovery in prices could support stock prices for gold companies such as Barrick Gold (ABX), AngloGold Ashanti (AU), B2Gold (BTG), and Yamana Gold (AUY). Collectively, these four stocks form 13.7% of the VanEck Vectors Gold Miners ETF (GDX).


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