Concerns about sputtering global growth and an escalation in trade tensions are fueling a mad dash for safety
Don’t expect the gold rush to end anytime soon — especially when it comes to gold ETFs.
Investors poured some US$2.6 billion into gold-backed ETFs in July, according to The Wall Street Journal. That increased their collective holdings to 2,600 tons, which data from the World Gold Council indicates is the highest total since March 2013.
The price of the precious metal has surged 17% over the past three months, recently overshadowing US$1,500 a troy ounce for the first time in six years. Haven assets such as gold have become exceptionally attractive as anxieties over slowing global growth and a flare-up in trade tensions resurface.
“The rally has also come as the Federal Reserve shifted its policy stance and cut interest rates for the first time in a decade,” the Journal noted. With expectations of lower borrowing, gold tends to get a lift as its lack of yield becomes less of a disadvantage.
Those demand factors have fuelled eye-watering inflows into gold funds. FactSet data shows that over the past month, the SPDR Gold Trust has reportedly seen some US$2 billion in new money, which accounted for more than two thirds of its total inflows in 2019 so far. Over the same period, the iShares Gold Trust saw an additional US$894 million from investors, which reportedly represented more than half of its inflows for the year.
The Journal reported that both ETFs gained about 7.5% each over the past month, as compared to gold’s 7.7% rally and the 5.5% decline in the S&P 500. Certain analysts and investors believe gold will continue to gain in the near term as investors seek a hedge against economic uncertainty.
“This has been one of the best environments for gold in the past half-decade,” said Ryan Giannotto, director of research at GraniteShares. “Lower rates, coupled with uncertainty surrounding Fed policy, is going to continue to be a positive for gold beyond the immediate future.”
Some investors may want to play gold not with direct commodity exposure, but through investments in mining companies. The Journal said shares of smaller gold miners may offer more opportunities for investors than their larger counterparts, which according to analysts at JPMorgan Chase & Co. are trading close to fair values.
“The firm raised its price targets this week on Agnico Eagle Mines Ltd. , Eldorado Gold Corp. , Franco-Nevada Corp. and NovaGold Resources Inc.,”the Journal said, adding that each of those stocks have advanced by at least 9.6% since mid-July.
Barrick Gold has also done well, reportedly climbing 15% over the same period.