After a strong 2019, gold-backed ETFs continued to perform strongly at the start of 2020, registering a new record high number of holdings at 2,947 tonnes of gold.
January saw an increase in gold ETFs of 61.7 tonnes according to the latest World Gold Council statistics, worth approximately US$3.1 billion. Trading volumes for gold were at an average of $181 billion per day, which is a 25% increase year-on-year. Interest in gold futures also increased; up 10% y-o-y.
33 tonnes of January’s increased ETF holdings came from Europe, with the UK the primary source of gold-backed ETF demand at 21 tonnes ($1.1 billion). This demand likely ties in with the resurgence of no-deal Brexit murmurs, now that the UK has officially left the European Union and is in the process of negotiating new trade deals with EU member states.
North American funds added a little more than the UK at 29 tonnes ($1.4 billion) with demand picking up due to the US/Iran clashes, President Trump’s impeachment proceedings, and the latest threat of the coronavirus, though the last part could be argued against given that Asian gold ETF demand actually fell slightly by 1.2 tonnes ($57 million).
Gold briefly touched $1,611 per ounce on January 8 – less than a week after the United States assassinated Iranian General Soleimani whilst on Iraqi soil, and less than 24 hours after Iran retaliated with missile attacks against US airbases in Iraq (something which Iran warned Iraq about it later transpired). The threat of conflict may have subsided for now but tensions are still strong in Iran, with the population growing ever-irate over the US sanctions on the oil-rich nation. Threats of conflict have driven up gold prices previously, though it was North Korea at the heart of the matter in the past two years, and any such action in 2020 would likely do the same.
One of the major factors benefiting physical gold and gold-backed ETFs in 2019 was the US/China trade war. The World Gold Council’s Gold Demand Trends report for 2019 highlights a seesaw action between consumer demand and ETF demand; as the global economic slowdown limited the capacity for consumers to spend, the concern and desire to diversify holdings compensated the demand lost with a strong increase in gold-backed ETF holdings. Q3, when the US/China trade war looked to be worsening, was the peak point for ETFs at 256.3 tonnes, though momentum fell towards the end of the year with reports that Phase One of the trade deal would be signed in the new year.
Like conflict, a breakdown in talks between America and China over trade could also scare investors again and drive a fresh surge of demand for gold – whether physical, ETF, or both.