Gold stocks ETFs to record high

ETFs' gold holdings hit a new all-time high of 2,808 tonnes in September. That made the World Gold Council Earlier this week. Investors are seeking refuge in gold after the announcement of new monetary stimulus by central banks. Geopolitical risks and persistently low interest rates are also increasing the demand for gold. In September, so-called Exchange Traded Funds 75.2 tonnes to their reserves, most of which in September was accounted for by North American funds.

The gold stocks of ETFs generally move in line with the gold price, because when the price is higher, there is usually more interest in Investing in precious metals. The fact that gold stocks are already larger than in 2012 is mainly due to European investors. Since 2012, the stocks of European gold ETFs have increased from more than 900 tonnes to almost 1,250 tonnes. As a result, there is now almost as much gold in European ETFs as in American ETFs (see chart below).

Investors are getting back into gold

Exchange traded funds (ETFs) are exchange-traded funds that track an underlying asset. In the case of gold ETFs, the collateral consists of physical gold. If interest in ETFs' shares increases, they can launch new shares. With the proceeds, they add gold to their stockpile. The reverse happens when demand for gold ETFs drops. In that case, the fund withdraws shares from circulation and part of the gold stock is put back on the market.

The advantage of this form of investing in gold is that the transaction costs and management fees are usually lower, but the disadvantage is that you do not have a claim on physical gold. Although the shares are backed by a certain gold stock, it is often not possible to exchange shares for physical precious metals. So you don't own gold (and you don't have a claim to gold), but you do get exposure to the Gold price. As a result, these instruments are particularly popular among investors and speculators. Institutional investors also often prefer ETFs because they are traded on the stock exchange just like regular stocks.

Higher gold price

The gold price in euros reached a record of more than €45,000 per kilogram this summer. The price of the precious metal has also risen in dollars, although with a price of around $1,500 per troy ounce we are not yet close to the record of $1,920 per troy ounce. Investors are seeking safe havens and increasingly prefer gold, as more and more bonds are trading at negative interest rates. With the prospect of more monetary stimulus from the Federal Reserve and the ECB, interest rates are expected to remain low for a long time. In theory, this is beneficial for the gold price.

Gold stocks ETFs surged to record highs in September (Source: World Gold Council)