by Peter Schiff, Schiff Gold:
Gold-backed ETFs recorded record net gold inflows, pushing holdings globally to record levels in 2020.
On net, ETFs globally added 877 tons of gold last year worth about $47.9 billion. Gold holdings rose by over one-third, ending the year at a record 3,752 tons, according to data released by the World Gold Council.
Gold ETFs added nearly 231 more tons in 2020 than they did during the previous record year of 2009 (646 tons).
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Every region registered significant growth in assets under management (AUM). According to the WGC, AUM by gold-back ETFs globally ended the year higher than the foreign reserve holdings of any central banks except for the US and only 15% below the portion of reserves that the US stores at Fort Knox.
- North American funds recorded inflows of 563 tons.
- Holdings in European funds grew by 260 tons.
- Funds listed in Asia saw holdings rise by 38 tons.
- Fund in other regions, including Australia, charted inflows of 16 tons.
Gold flowed into ETFs for 11 straight months in 2020 before reversing course in November as investors reduced hedges and increased risk-asset exposure amid positive sentiment following the US election and the announcement of successful COVID-19 vaccines. Net gold outflows totaled 109 tons in November. December also saw gold flow out of ETFs, but at a significantly slower pace — 40 tons.
The dollar price of gold rose 24.5% during 2020, hitting a historical high of $2,067.15 in August. It was the best year for gold in a decade. Despite dropping 12% in March as the onset of the coronavirus pandemic rocked markets, gold recovered to finish the year among the best-performing assets, despite many stock indices reaching or surpassing all-time highs.
The World Gold Council expects many of the same drivers that made 2020 a record year to continue into 2021, including lower interest rates and improved opportunity costs, fiscal stimulus, lofty stock valuations, and the ongoing economic effects of COVID-19.
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.
There are good reasons to invest in ETFs, but they aren’t a substitute for owning physical metal. In an overall investment strategy, SchiffGold recommends buying gold bullion first.
When considering gold-backed ETFs, you should always keep in mind that you don’t actually own the gold. Buying the most common ETFs does not entitle you to any actual amount of the precious metal.