The amount of physical gold held by exchange-traded funds surged over the third quarter as investors looked for safe places to stash cash amid concerns over slowing global growth and looser monetary policy.
Demand for the yellow metal among retail and institutional investors more than doubled compared to the same quarter last year to reach 408.6 tonnes, of which almost two-thirds — 258 tonnes — was attributable to buying by ETFs, according to data from the World Gold Council, an industry-backed body. The balance of about 150 tonnes came from investors buying gold bars and coins directly.
Gold has been one of the best performing commodities of 2019, rising by almost 18 per cent to a six-year high above $1,500 an ounce.
The year’s advance has led some analysts to predict that gold could hit a record $2,000 an ounce within the next two years, topping the nominal highs of 2011. The rally has also given a lift to the share prices of major producers, including Barrick Gold and Newmont Goldcorp.
The precious metal has traditionally been seen as a haven and a store of value, as well as being less exposed to political risk than many other commodities. Its appeal has been burnished further this year by a huge stock of bonds trading at negative yields, which guarantee buyers a loss if they hold to maturity.
“Investors have increased their exposure to gold in response to low interest rates, negative yields, and geopolitical and economic uncertainty,” said Alistair Hewitt, a director at the WGC.
Last week, the US Federal Reserve announced its third interest rate cut of 2019, which it justified on the grounds of an uncertain global economic outlook. Its more cautious stance since the turn of the year has been mirrored by the European Central Bank and the Bank of Japan, among others.
“The biggest change this year has been the impact of the Fed. Last year everyone expected the Fed to raise rates [this year],” Mr Hewitt said. “The US [Federal Reserve] is important but gold is globally traded and more central banks have cut rates this year than any since 2009.”
Gold-backed ETF holdings rose to a record 2,855 tonnes, worth $136bn, in September. Demand from US-listed ETFs was particularly robust during the third quarter, said the WGC.
SPDR Gold Trust, the world’s largest physically-backed gold ETF, saw inflows of $6.5bn of gold over the nine months to September. At Blackrock’s iShares Gold Trust, inflows over the same period came to $2.9bn.
Gold has also been supported by purchases by central banks, especially in Turkey, Russia and China. Combined, the trio added almost 120 tonnes of gold to their reserves during the quarter, which puts purchases by public institutions on track for another record year. As a group, central banks have snapped up almost 550 tonnes so far this year.
However, consumer demand for gold jewellery took a hit, down 16 per cent to 460 tonnes, damped by falls in confidence in India and China.
But many analysts see the gathering economic gloom weighing in gold’s favour. Joni Teves, a precious metals strategist at UBS, said in a note that “the current environment remains supportive of gold — we continue to see higher prices ahead”.