Gold ETFs post ninth consecutive month of inflows

Gold ETFs continue to be in high demand. Tom Bailey explains the key reasons why. 

So far this year, investors around the world have ploughed $51 billion (£39 billion) into gold ETFs, bringing the collective amount of ETF money invested in gold to $241 billion, according to the World Gold Council’s ETF flows report for August.

The report showed that in August gold ETFs saw their ninth consecutive month of inflows, although the amount of money invested was at the slowest monthly pace in 2020 so far. The latest figures mean that year-to-date, gold ETF inflows have surpassed the previous largest annual gain in 2009 by nearly 50%.

Gold has been one of the year’s best-performing investments, hitting new all-time highs above $2,000 per ounce. There are several reasons for this.

First, Covid-19 has created a heightened sense of risk and uncertainty for the global economy. Gold is usually seen as a safe haven for investors amid such conditions.

Meanwhile, the continued low yield of bonds (themselves often seen as a safe-haven asset) due to aggressive monetary easing from central banks has increased the relative attractiveness of gold. Gold doesn’t produce an income, but neither do bonds when real interest rates are negative.

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On top of that, some investors appear to be buying gold out of a fear that the above-mentioned monetary policy of central banks, combined with increased spending from governments, might end up unleashing inflation. According to advocates of this view, gold should provide protection in the face of devaluing currencies.

Finally, there is the momentum aspect. If the price of something goes up by a lot, it attracts speculative investors expecting further price rises, who in turn end up pushing the price up higher.

In terms of regional demand in August, North America continued to be responsible for the lion’s share of inflows. There was also a pick-up in demand from Asian investors, alongside the launch of two new gold-focused ETFs in the region.

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For Europe, however, more money was withdrawn than invested in August. The continent saw gold ETF assets under management decline by 0.9% for the first time since November 2019. According to the World Gold Council: “A stronger euro, which has appreciated 9% against the US dollar over the past four months, along with improving investor sentiment in the region, could have also played a role in the outflows.”

The most popular gold ETF in August continued to be the iShares Gold Trust, aimed at US investors. However, Invesco Physical Gold ETC GBP (LSE:SGLP), an ETF for UK investors, was the third most popular – the only ETF for UK investors to appear among the top 10.

Meanwhile, among the gold ETFs that experienced the most outflows was the iShares Physical Gold ETC (LSE:SGLN). Over the course of August, it experienced a decline in its assets under management of 0.7%, meaning investors pulled out more than $100 million. Also on the list was WisdomTree Physical Gold (LSE:PHGP), which saw investors pull a total of $50 million, representing 0.6% of its assets.

Curiously, both these ETFs were among the most popular ETFs on interactive investor in August, with iShares Physical Gold being the second-most bought ETF on the whole platform. This is explained by the difference in measurement. Whereas the World Gold Council’s report looks at the dollar volume of inflows, our most-popular ETFs series looks at the total number of individual purchases rather than the value of these flows.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.