by Peter Schiff, Schiff Gold:
Globally, ETFs added gold for the 10th straight month in September and pushed total inflows to over 1,000 tons on the year.
The previous yearly inflow record was 646 tons set back in 2009.
Gold ETF holdings increased by 68.1 tons last month, despite the metal’s worst monthly price performance since November 2016, according to data released by the World Gold Council.
So far in 2020, ETFs have added 1,003 tons of gold, taking total holdings to an all-time high of 3,880 tons and $235 billion in assets under management (AUM).
Gold ETF holdings grew 7% during the third quarter, adding 273 tons or $16.4 billion in assets as the price of gold rose by nearly 7% during the same period. North American funds saw the biggest gold inflows during the quarter but the WGC said inflows in Asia stand out the most. Asian ETFs grew gold holdings by 17%.
Last month, North American funds saw inflows of 34.6 tons. SPDR Gold Shares led global inflows, adding 17.4 tons.
After seeing outflows in August, European funds reversed course and added 26 tons in September.
Asian funds added 6.8 tons as two new funds launched in China. That raised the total number of new Chinese funds to seven this year. Meanwhile, safe-haven demand and strong year-to-date returns in the domestic gold price fostered Indian fund inflows during the month.
Funds in other regions, including Australia, added 0.6 tons of gold.
The World Gold Council projects continued growth in gold investment, noting that the September pullback was likely “tactical” in nature.
Despite the weaker prices, positioning and volumes, investment demand via gold ETFs increased, suggesting continued long-term strategic positioning.”
The WGC also noted that central banks seem willing to let inflation run hot, a bullish policy for gold. In August, the Fed shifted the inflation goalposts and other central banks seem set to follow suit. The WGC says the Federal Reserve’s higher inflation targeting policy could bode well for gold prices in the future.
Gold is seen as a well-established global inflation hedge, historically achieving stronger returns in higher inflationary markets. In the US, for example, since 1971, the nominal returns of gold with CPI levels below 3% have averaged nearly 6%, while returns in inflation environments above 3% have averaged 15%.”
Inflows of gold into ETFs are significant in their effect on the world gold market, pushing overall demand higher.
ETFs are backed by physical gold held by the issuer and are traded on the market like stocks. They allow investors to play gold without having to buy full ounces of gold at spot price. Since their purchase is just a number in a computer, they can trade their investment into another stock or cash pretty much whenever they want, even multiple times on the same day. Many speculative investors appreciate this liquidity.