The yellow metal continues to outperform other major asset classes this year as concerns regarding the impact of the pandemic on the global economy have investors scurrying for safe-haven assets. Gold prices have bounced back around 26% so far this year. Riding on the rising demand for gold, gold-backed ETFs have witnessed record inflows so far in 2020.
Going by new data released by World Gold Council, gold-backed ETFs witnessed 10 consecutive months of positive flow in September and added 68.1 tons equivalent to around $4.6 billion or 2% of assets under management. Notably, in the first nine months of 2020, global net inflows of gold ETFs were at 1,003 tons ($55.7 billion) per the World Gold Council, beating the record of 646 tons set in 2009. Moreover, gold ETF holdings universe has also remarkably hit a fresh new all-time high of 3880 tons and $235 billion in AUM.
Overall, for the first nine months of 2020, all regions saw net inflows led by North American funds, which boosted the holdings by 648.9 tons or $36.7 billion.
Will Gold See Increasing Demand?
The upside is being largely supported by a weaker dollar and declining bond yields. The yellow metal shares an inverse relationship with the greenback. A weak dollar against different currencies makes precious metal cheaper in other currencies and thereby increases its demand and prices. Meanwhile, rising geopolitical tensions are supporting the yellow metal. The simmering tensions between the United States and China are making investors worry.
Moreover, the coronavirus pandemic is getting severe as the total number of cases recorded globally has reached at least 38 million, with a death toll of around 1.08 million. Uncertainty surrounding the coronavirus pandemic over the longer term is making the yellow metal’s reputation as a store of wealth more attractive, in turn supporting the rally in gold prices, per a Bloomberg article.
Also, some analysts believe the Federal Reserve’s measures to provide support to the ailing economy seem to be supportive of investments in gold and treasuries. Moreover, interest-rate cuts are lowering opportunity costs of investing in non-yielding bullion. Meanwhile, making the situation worse, major players in the race to develop coronavirus vaccine and antibodies development have announced the pausing of trials.
Moving ahead, this election year could turn out to be the worst with the coronavirus pandemic intensifying by the day. Also, investors generally opt for cash or cash-like investments instead of risky assets like equities while evaluating the economic and financial impact of the election results.
With China gradually recovering from the pandemic-driven economic slowdown, gold demand could get a significant boost in the upcoming holiday season. Notably, the world’s second-largest economy makes for more than 20% of annual gold demand, going by a Global Mining Review article. Also, India, which is the second-largest gold consuming nation globally, saw healthy monsoon rainfall for the second straight year. Around 60% of the gold demand in the country is tied to the rural populace, which depends on monsoon, according to the same article referred above. This could help counter the negative impact of coronavirus in rural areas and boost gold demand in the country.
Gold ETFs in Focus
Yellow metal investments have been popular this year due to the coronavirus outbreak. Net inflows in gold-backed ETFs are expected to continue as the remainder of 2020 is likely to keep facing the brunt of the pandemic.
Gold ETFs mostly move in tandem with gold prices. The SPDR Gold Shares (GLD - Free Report) , iShares Gold Trust (IAU - Free Report) , SPDR Gold MiniShares Trust (GLDM - Free Report) and GraniteShares Gold Trust (BAR - Free Report) are some of the popular ETFs. These funds carry a Zacks ETF Rank #3 (Hold). Below we have discussed these in detail:
This is the largest and most popular ETF in the gold space, with AUM of $76.83 billion. The fund reflects the performance of the price of gold bullion, less the Trust's expenses. At launch, each share of this ETF represented about 1/10th of an ounce of gold. The expense ratio is 0.40% (read: Goldman Expects Dollar Weakness: ETFs to Play).
This ETF offers exposure to the day-to-day movement of the price of gold bullion. It has AUM of $31.30 billion. At launch, each share of this ETF represented about 1/100th of an ounce of gold. The ETF charges 25 basis points (bps) in annual fees (read: Gold ETFs to Get Back Their Glitter As Volatility Flares Up?).
This product seeks to reflect the performance of the price of gold bullion, less GLDM’s expenses. Being one of the low-cost products with an expense ratio of 0.18%, GLDM has accumulated $3.56 billion in AUM. At launch, each share of this ETF represented about 1/100th of an ounce of gold (read: Prepare for Volatility & Inflation with These ETFs).
With AUM of $1.29 billion and an expense ratio of 0.17%, the fund tracks the performance of gold price less trust expenses. At launch, each share of this ETF represented about 1/100th of an ounce of gold (see: all the Precious Metal ETFs here).
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