Investors go for gold-backed funds
WORLDWIDE: INFLOW THE HIGHEST EVER IN 2020
Boosted interest from March onwards
Investments push the holdings of ETFs to a new record.
An analysis of the flow of investment into exchange-traded funds (ETFs) and similar investment products that offer exposure to physical gold show that investors loaded up on gold during a year in which the world lurched from one crisis to the next.
Globally, gold-backed ETFs recorded the highest inflow of new investments during 2020, leading to ETFs worldwide buying an additional 877 tons of gold.
The increase in investment in physical gold via ETFs in 2020 dwarfs the previous annual record of 2009 when funds reported net purchases representing 646 tons of gold.
This increase in gold purchases is the largest ever in a single year, increasing the total amount of gold owned by investors in ETFs and similar investment vehicles to 3 752 tons at the end of 2020.
A report by the World Gold Council states that total gold holdings was even higher at the beginning of November at 3 915 tons before net outflows in the last few weeks of the year.
The report notes that the 3 752 tons of gold locked away on behalf of investors at the end of the year also represents a new record.
We all remember 2009, the year when huge banks and other financial institutions failed around the world, financial assets nearly halved in value and predictions about the fall of capitalism peaked. Gold was the go-to then, and seems to have become even more popular when the coronavirus pandemic hit the world last year.
“While the ultra-low interest rate environment drove inflows in January and February, the global spread and severity of the Covid-19 pandemic from March onwards boosted interest in gold,” says the report.
“The heightened risk environment, fiscal and monetary responses to the economic impact of the pandemic and gold price momentum continued to drive inflows in the second half of 2020.”
Detailed figures show that the pace of inflows into gold-backed ETFs slowed after the gold price hit a new record of above $2 000 (about R30 000) per ounce in early August and investors seemed to have started taking profit after that, with net outflows recorded during the last weeks of November and in December.
It’s interesting that the gold funds on the JSE did not experience the same growth as seen in the rest of the world last year.
1nvest executive Johann Erasmus says the 1nvest Gold ETF also experience record inflows in 2020, but quoted figures that show the fund actually ended the year with less gold in the vaults than at the start of the year.
“We started on R1.4 billion in assets under management, rising to over R4 billion and then closing the year on R1 billion as our clients took profit on their positions post the rapid rise in the gold price,” explains Erasmus.
Absa’s NewGold ETF also saw an outflow of investments and thus lower gold holdings at the end of 2020 than a year earlier.
The NewGold ETF fact sheet shows that holdings reached a record high of around 1.7 million ounces in August 2018, declining nearly steadily every year to less than 700 000 ounces at the end of December 2020.