Gold-Backed ETFs Started 2019 on a Positive Note—More Upside?



Gold-backed ETFs

According to the World Gold Council, holdings in gold-backed ETFs and similar products rose by 69 tons in 2018, equivalent to $3.4 billion worth of inflows. This amount was, however, lower than the rise of 206.4 tons in 2017.

Major inflows in gold-backed ETFs (GLD) (IAU) started in the fourth quarter of 2018 due to stock market volatility and economic growth concerns. Global inflows of 112.4 tons during the fourth quarter more than reversed the 104 tons of outflows from the third quarter.

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A positive start to 2019

Gold-backed ETFs also saw a positive start in 2019. According to the World Gold Council, so far in the year, global inflows to gold-backed ETFs have reached 59 tons. North American funds are leading this buying activity as global growth projections have been revised downward. The Fed’s (TLT) dovish stance might also be leading investors to gold ETFs.

Drivers of gold ETF buying

While physical gold (GDXJ) (JNUG) buying usually gets a boost from lower prices, ETF inflows usually occur when investors are convinced that prices are in an uptrend. While gold prices have languished for the most part of 2018, October saw a resurrection in the metal’s safe-haven appeal. During October and November, gold prices gained 2.5%, while the S&P 500 Index (SPY) fell 5.0%, and the NASDAQ Composite Index (QQQ) fell 8.9%. The SPDR Gold Shares ETF (GLD), the world’s largest gold-backed ETF, led the inflows with 7.7 tons in November, while the iShares Gold Trust ETF (IAU) added 5.4 tons.


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