Swiss 100 gram gold bars and Canadian maple leaf gold coins
Gold prices are up. Thank ETF investors.
That’s the takeaway from a recent note from research shop DataTrek, which contrasted the 18.4% full-year increase in the gold price with a 1% decline in global demand for the precious metal. The big price jump was a double-edged sword, DataTrek noted: it attracted investors but kept consumers on the sidelines.
Throughout the year, as volatility buffeted markets and global downturn concerns pushed investors into safer havens, exchange-traded fund holdings of gold rose 16% to 2,886 tons, an all-time high.
Global central banks, which have been big buyers of gold in recent years, were more subdued in 2019. They bought 0.9% less gold in 2019, but that was still enough to keep full-year purchases near a 10-year high. Central banks like those in Russia and China buy gold as “a way of gaining US dollar exposure (gold is priced in greenbacks globally) without helping the American government fund its ever-growing budget deficit,” said Nicholas Colas, DataTrek’s co-founder. “Gold is also a hedge against their local currency, of course.”
Consumer purchases of jewelry and bars and coins declined even more dramatically, essentially offsetting the inflows from ETFs. As prices rose, reaching $1,481 per ounce in the fourth quarter, the highest since 2013, consumers in weaker economies like China and India backed away.
“Global ETF demand will continue to drive prices,” Colas added. With the economies of China and India at a standstill and slowing, respectively, “it will be up to financial market investors to pick up the slack of lower jewelry/coin/bar demand. Given macro uncertainty at present (and ever-lower sovereign debt yields), it is reasonable to expect that they will.”
The top seven gold ETFs by assets under management are noted below.
|Fund name, ticker||Assets||Expense ratio||12-month return|
|SPDR Gold Trust GLD, -1.31%||$45.2 billion||0.40%||19.68%|
|iShares Gold Trust IAU, -1.33%||$18.55 billion||0.25%||19.9%|
|Aberdeen Standard Physical Gold Shares SGOL, -1.38%||$1.33 billion||0.17%||19.97%|
|SPDR Gold MiniShares Trust GLDM, -1.34%||$1.22 billion||0.18%||19.91%|
|GraniteShares Gold Shares BAR, -1.53%||$627.6 million||0.175%||20.05%|
|VanEck Merk Gold Trust OUNZ, -1.49%||$196.9 million||0.40%||19.74%|
|Perth Mint Physical Gold ETF AAAU, -1.62%||$188.8 million||0.18%||19.89%|