Gold stocks ETFs reach record despite lower gold price

Despite the fall in the price of gold, investors continue to Buy gold, as stocks of ETFs rose again last month to Record. At the end of September, these investment products had a gold stock of 3,871.8 tonnes. This is more than at the beginning of August, when the Gold price one all-time high Reached. This is remarkable, because the interest in these investment products is normally strongly correlated with the price. Now, investors are holding their position despite the fact that the price of the precious metal fell by almost 10%.

The chart below shows that ETFs' gold stocks have risen almost continuously since the beginning of this year. That means investors have been adding precious metals to their portfolios all year long. Due to turmoil in the financial markets, uncertain economic prospects and extremely low interest rates, more investors are entering precious metals. This was accompanied by a rise in the price of gold, which even reached a new record of $2,067 last summer. As the dollar strengthened, the precious metal lost some of its gains over the past two months, but for investors that was no reason to gold to sell.

Gold stocks ETFs to record highs, despite decline Gold price 

How does a gold ETF work?

In recent years, the popularity of ETFs has increased significantly, because it allows investors to invest in commodities in a simple way. A gold ETF issues shares based on physical gold as collateral, which are traded on the stock exchange. If these stocks are in high demand, the ETF may decide to issue additional shares. With the proceeds of such an issue of shares, the fund adds gold back to its reserves. If demand for the shares falls, the fund can sell some of its gold and use that money to take shares out of the market.

The advantages of investing in gold through ETFs are the low transaction fees and the ease with which you can trade stocks. The disadvantage is that you only have a paper claim in your hands, which is usually not exchangeable for physical gold. If there is a run on gold, you will have to join the back of the queue to get gold. Also, you can actually store physical gold outside the financial system, while ETFs can only be traded through a bank or broker. The safest option is therefore physical gold in the form of coins and bars, possibly in combination with insured storage. This can be done, for example, via Aunexumsafe.

This contribution was made from Geotrendlines