U.S. investors are getting back into gold ETFs

U.S. investors expanded their exposure to gold ETFs in November for the first time in three months. This is what the World Gold Council based on new data from the most well-known gold ETFs. European investors also added the precious metal back to their investment portfolios through these types of investment products. The renewed interest in gold is the result of higher-than-expected inflation data. In both the U.S. and Europe, these reached the highest level in decades.

Since the beginning of the year, gold holdings of US and Canadian gold ETFs have nevertheless fallen by 178.1 tonnes, a total of 1,823.7 tonnes. This drop of almost ten percent can be explained by a drop in the price of gold earlier this year, which caused investment funds to prefer other investments. The rise in interest rates on US government bonds earlier this year also played a role, as it put pressure on the gold price.

More demand for gold in Europe and Asia

In Europe, the positions of gold funds have remained virtually unchanged at 1,560.3 tonnes since the beginning of the year. However, we do see an interesting shift from the United Kingdom (-35.7 tonnes) to Germany (+17.2 tonnes) and France (+10.7 tonnes). One possible explanation for this is that funds in the UK also cater to an American audience, while ETFs in Germany and France focus mainly on the domestic market. In these countries, the demand for gold is also significant this year.

In Asia, the market for these investment products, which allow people to Buy gold As if it were a stock, still in development. New funds are added every year. This year, the total stock of Asian gold ETFs rose by 17.7 tonnes to 132 tonnes. This makes this region currently the most important growth market for this type of gold investment. In many Asian countries, people traditionally prefer to buy physical precious metals in the form of Gold Coins, bars and jewelry, but gold ETFs are on the rise there as well.

Correlation between gold price and gold ETFs

The chart below shows that there is a strong correlation between the price of gold and the total stock of gold ETFs. If the price rises, the demand for these types of investment products also increases. In the event of a decrease in Gold price the opposite happens and investors reduce their positions.

It is also striking that the ratio between North American and European gold funds has changed significantly since the credit crisis. At the beginning of 2009, European ETFs accounted for a quarter of total inventories, but now they account for almost half. Due to the financial crisis and the European debt crisis, more European investors sought refuge in gold. Due to exceptionally low interest rates and skyrocketing inflation, more and more savers are now buying the precious metal as a safe haven.

Development of gold stocks ETFs since 2003

This contribution was made from Geotrendlines