Gold ETF buying
Gold ETFs have seen renewed buying interest from investors in October on increased market volatility and the equity market sell-off. According to a report by the World Gold Council (or WGC), the holdings in gold-backed ETFs saw inflows of 16.5 tons in October to total 2,346 tons. This marked the first inflow in four months for gold ETFs.
While physical gold buying usually gets a boost from lower prices, ETF inflows usually occur when investors are convinced that prices are in an uptrend. WGC also attributes higher gold prices as the key driver behind inflows in North American and European funds.
Restoration in gold’s safe-haven status
While gold prices have languished for the most part of 2018, October saw an equity market rout that renewed its safe-haven appeal. The S&P 500 (SPY) was down 6.9%, and the NASDAQ Composite (QQQ) fell 8.6% in October. The SPDR Gold Shares (GLD), the world’s largest gold-backed ETF, led the inflows with 11.8 tons, while the iShares Gold Trust (IAU) added 5.0 tons.
ETF holdings and gold prices
There is a lot of uncertainty and volatility in the current economic macro environment with trade tensions continuing and geopolitical issues ramping up. Moreover, as fears of a US slowdown weigh on investors’ minds as the impact of tax reform and share buybacks wane going forward, gold could be the go-to asset. Further recovery in prices could support stock prices for gold companies (GDX) 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).
In addition to ETF buying, central banks also increased their gold buying during the latest quarter. We’ll discuss this in more detail in the next part of this series.