Global gold-backed exchange-traded funds (ETFs) and similar products added 84.5 t, or net inflows of $4.9-billion, across all regions in February, boosting holdings to a new all-time high of 3 033 t, according to new data published by the World Gold Council (WGC) on Thursday.

Combined with a gold price increase of nearly 2%, assets under management (AUM) grew 4.4% in dollars during the month, breaching the previous September 2012 record high.

At that time, the gold price was 10% higher than current levels, highlighting the global growth in gold ETFs outside of the US; and that US investors have not yet increased their gold allocations as much as they did in 2012.

The market’s uncertainty on the potential impact of the coronavirus outbreak on the global economy drove strong inflows to all regions during the month, the council noted.

It said North American funds led regional inflows with an additional 42 t, or $2.3-billion, while European funds added 2.8% to assets with an additional 33 t, or $2-billion.

Asian funds, primarily in China, also finished the month with strong inflows, adding 8.7 t, or $425-million, while funds in other regions grew 6%, adding 800 000 kg and $132-million.

PRICE PERFORMANCE

The London Bullion Market Association’s (LBMA’s) gold price reached an intra-month high of $1 672/oz during the last week of February – levels last seen in 2013 – but gave back some of those gains to finish the month up 1.6% in dollar terms.

Prior to the late month move in the markets, the WGC said leverage in risky assets like stocks were at “a lofty level”.

Uncertainty around global health and safety and its potential economic impact caused market volatility and de-risking, and the quick, sharp sell-off in stocks may have caused margin calls – where liquidity sourcing from assets like gold was required – as stocks finished the month with the worst weekly performance since the financial crisis.

At the time of publication, the council said gold had outperformed most major asset classes this year and is the only one in positive territory at this point, higher by over 8%.

Gold’s performance separated itself from broader commodities as the broader commodity indices fell between 7% and 11% on the month and oil fell another 15%.

Gold global trading volumes averaged $195-billion a day in February, an increase of 34% year-on-year, while futures open interest increased 27% to $122-billion.

The Commodity Exchange, a division of the New York Mercantile Exchange, hit all-time highs of 1 209 t, or $63-billion, during the month, a sign of overall bullish positioning.

However, the council noted that past instances of extreme bullish and bearish positioning that are not supported by a broader set of investors have “often been followed by price reversals”.

Looking ahead, the WGC said multiple drivers continued to support the demand for gold moving forward, and that US Treasuries had been the recipient of risk-off flows.

The US ten-year and 30-year bond rates continued to hit all-time lows, improving the opportunity cost of holding gold.

“We have found that lower rates have a positive impact on gold prices and offer the opportunity for additional gold exposure (potentially replacing bonds) in a low-rate environment,” the council said on Thursday.

Additionally, the council said the US Federal Reserve made a surprise 50 basis point (bps) rate cut in an attempt to ease concerns about the coronavirus effects. Futures in the US are pricing in a total of 100 bps of cuts in 2020, which would take the target rate down to between 50 bps and 75 bps.

The impact of monetary policy on gold highlights how the precious metal tends to outperform during easing cycles, the council highlighted, noting that its 2020 outlook themes remain constant, and that it expects “market risk and slowing economic growth interaction to impact gold prices, particularly as the financial effects of the coronavirus are realised”.

Additionally, the WGC warned that lower interest rates, increased gold price volatility and central bank intervention could continue.