Investor demand for gold has been surging this year, and by one measure, appetite for the yellow metal is at an all-time high. The amount of gold held by gold-backed ETFs hit a record high in September, according to the World Gold Council.
The WGC said that 2,808 metric tons of gold was held in gold ETFs at the end of September, an increase of 75.2 tons from the previous month. Year to date, holdings are up 368 tons, equal to $17.9 billion. Those are the strongest inflows for gold ETFs since 2016, when investors plowed $22 billion into the space.
It’s not just U.S. investors who have been buying. ETFs listed in the country, such as the SPDR Gold Trust (GLD), the iShares Gold Trust (IAU) and the SPDR Gold MiniShares Trust (GLDM), have certainly seen strong inflows—$6.5 billion, $3.4 billion and $569 million, respectively.
But so too have funds listed in Europe and elsewhere. Altogether, year-to-date inflows for North American gold ETFs are $10.4 billion, more than $7 billion for European gold ETFs and for everywhere else they are $439 million.
It’s not a surprise to see these robust inflows into gold exchange-traded funds. Investors around the world are grappling with economic uncertainty, geopolitical uncertainty and extremely low interest rates.
Each of those factors plays right into the bullish thesis for gold. The metal is widely regarded as a safe haven against all manner of uncertainty, and the low-to-negative yields around the world significantly reduce the opportunity cost of holding it.
When investors have to pay the German government 0.44% annually to lend it money for 10 years, zero-yielding gold starts to look attractive. That’s even accounting for the expense ratio on gold ETFs, which can be as low as 0.17% in the case of the GraniteShares Gold Trust (BAR) or 0.18% for the aforementioned GLDM.
Prices At 6-Year High
Strong demand from ETF investors is a large part of why gold prices have leapt to six-year highs in 2019. Prices for gold reached as much as $1,557/oz in September and were last trading around $1,484, still up 16% on the year.
Gold prices hit their highest level ever in September 2011 at $1,921. They fell during the next four years, bottoming out at $1,046 in December 2015. Ironically, the bottom in gold corresponded with the month in which the Federal Reserve ended its zero interest rate policy, lifting rates for the first time since the financial crisis.
Between December 2015 and December 2018, the central bank slowly hiked rates, getting them as high as 2.5% at the upper bound. During that time, gold was range-bound, but well off its lows from 2015.
After three years of steady increases, the Fed’s rate-hiking cycle resoundingly came to an end this year. Already in 2019, the Fed has cut the federal funds rate twice, with potentially more cuts to come. That has turbocharged gold’s rally this year.
Looking ahead, investors will surely be keeping a close eye on the trajectory of rates in the U.S.—and elsewhere—for hints on where gold may go from here.