Gold-backed exchange-traded funds (ETFs) recorded their seventh consecutive month of positive flows, adding 104 t in June (equivalent to $5.6-billion, or 2.7%, of assets under management, or AUM) and taking global holdings to new all-time highs of over 3 621 t.
This brings the total global net inflows for the first half of the year to 734 t ($39.5-billion), significantly above the highest level of yearly inflows, both in tonnage terms (646 t in 2019) and dollar value ($23-billion in 2016).
To put this strength of demand into context, the six-month period’s inflows are also significantly higher than the multi-decade record level of central bank net purchases seen in 2018 and 2019, and could absorb a comparable amount of about 45% of global gold production in the first half of this year, the World Gold Council (WGC) said on July 7.
In June, global gold ETFs registered three consecutive days of outflows near the beginning of the month – the first consecutive daily declines since March – before regaining momentum, and all regions saw net inflows during the month, with North American funds accounting for the lion’s share.
North American funds dominated activity in June, accounting for 80% of global net inflows, the WGC said, noting that the region added 83 t ($4.6-billion, or 4.3% AUM).
European-listed funds added 18 t ($745.7-million, or 0.8% AUM), with Swiss- and German-based funds seeing the highest increases and offsetting declines in UK-based funds.
Asian-listed fund holdings rose fractionally during the month, by 0.4 t ($36.7-million, 0.6% AUM), with India-based funds seeing the largest increase in the region.
Funds listed in other regions registered a 3 t ($150.1-million, or 4.4% AUM) increase.
The macroeconomic drivers leading to this include stock markets having started July on a positive note, with optimism growing as economies around the world began to emerge from their respective lockdowns.
US stocks were boosted by a jobs report that defied dire expectations and showed a fall in unemployment from 14.7% to 13.3%, and in Europe, the easing of strict lockdown restrictions in several economies gave investors further hope for a recovery in the global economy.
However, as the month progressed, this positive sentiment was replaced by concerns over increasing Covid-19 infection rates in various locations and the potential for a second wave of infections.
Despite the better-than-expected US jobs report for May, and emerging signs of recovery in the US economy following the Covid-19 lockdown, the Federal Reserve (Fed) remained cautious, saying that the Fed is “strongly committed to using our tools to do whatever we can for as long as it takes”.
While the potential for further accommodative monetary policy measures has been generally seen as positive for stocks, the WGC said the cautious tone reinforced a more general risk-off sentiment, as many market participants started to shift to an expectation that any economic recovery will likely be slower (U-shaped) as opposed to swifter (V-shaped).
Speculation over the potential impact of a second wave of Covid-19 infections on an already fragile global economy caused a renewed wave of fear and uncertainty, and meanwhile, ongoing asset purchases by central banks to mitigate the impact of the pandemic further reduced the opportunity cost of holding nonyielding assets such as gold.
According to the WGC, these factors continued to drive gold investment demand, with gold ETFs a key beneficiary of this momentum.
In terms of price performance, gold in dollars extended its year-to-date gains in June, as it rose 2% to finish at $1 768.1/oz – reaching its highest level since October 2012.
Gold volatility remained below the elevated levels seen in March and April (more than 30%), with 30-day realised volatility decreasing to between 14% and 15% in June.
Implied volatility remained steady during the month, oscillating around 20%, which the WGC said indicates that investors are expecting more short-term movement in the gold price.
Gold continued its outperformance of other major asset classes in June and has gained more than 17% over the first half of 2020.
The WGC noted that this compares with global stocks, which remain below the level they started the year, and broader commodities – represented by the S&P GSCI – which are down between 20% and 30% year-to-date.
Oil, however, continues to be one of the worst performing assets this year, down by nearly 34%, the council said.
Global gold trading volumes fell to $156.9-billion a day in June, down 6% from $167.6-billion in May. Daily trading volumes remain below the year-to-date record of $233-billion seen in March, but the WGC said this is “comfortably above the 2019 daily average of $145.7-billion”.
COMEX net longs, via the Commitment of Traders report, meanwhile, fell to 701 t – the lowest level since June 2019, before recovering towards the end month to 857 t, 30% below February’s all-time high of 1 209 t ($63-billion).
Looking ahead, the council said the economic and geopolitical environment remains supportive for gold investment, with most of the existing gold demand drivers still relevant.
“The opportunity cost of holding gold remains low, as continued central bank activity keeps interest rates low or negative, while several countries continue to experience high levels of tension/unrest.”
There are also serious concerns that the trajectory of the Covid-19 pandemic threatens any nascent economic recovery, especially as growing infection rates across some parts of the world, particularly in the US, suggest that there is some way to go before economies can reopen with confidence, the WGC noted.
The council also referred to a recent media briefing, during which World Health Organisation head Dr Tedros Adhanom Ghebreyesus warned that "although many countries have made some progress, globally the pandemic is actually speeding up", meaning that investors will continue to face heightened risk and uncertainty.