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Gold ETFs See Record Inflows in 1H20 Amid Coronavirus Crisis

Sweta Jaiswal, FRM

The first half of 2020 has mostly been dominated by the coronavirus pandemic, with safe-haven assets gaining favor among investors. Resultantly, gold-backed ETFs have witnessed record inflows. Going by new data released by World Gold Council, global net inflows came in at $39.5 billion in bullion-backed ETFs, beating the previous annual inflow record of $23 billion in 2016.

Net inflows for June rose 2.7% to $5.6 billion. Contribution in around 80% of global net inflows in June came in from North American funds at $4.6 billion. Commenting on the record inflows, Juan Carlos Artigas, Head of Research, World Gold Council, has said that "gold ETF investment demand shattered numerous records this year as investors sought safety from the economic turmoil created by COVID-19. To put it in context, inflows in the first half of 2020 significantly exceeded multi-decade record levels of net gold purchased by central banks in 2018 and 2019," per the report.

The record inflows in gold-backed ETFs were backed by continued rise in gold prices. In fact, the yellow metal gained around 13% in second-quarter 2020 — the largest quarterly percentage increase since first-quarter 2016 when it had posted a rise of 14.6%.

What to Expect in 2H20?

The net inflows in gold-backed ETFs are expected to continue as the second half of 2020 is expected to keep facing the brunt of the pandemic as the second wave of the outbreak is gathering steam. The coronavirus crisis continues to be acute in the United States as the death toll has now crossed 130,000.

The infectious diseases expert, Dr. Anthony Fauci, has said that United States is “knee-deep” in the first wave of the pandemic even as the number of coronavirus cases has doubled within a week and a half, per a CNN report. Given the current situation, at least 24 states have paused or rolled back reopening efforts for some time, which can again derail the economic recovery achieved so far. This can hurt the risk-on sentiments with increasing number of investors taking shelter in yellow-metal investments.

In the meantime, renewed U.S.-China tensions are again hurting the risk-on sentiments of investors, making investments in yellow-metal more attractive. Also, some analysts believe the Federal Reserve’s measures to provide support to the ailing economy seem to be supportive of investments in gold and treasuries. Also, interest-rate cuts are lowering the opportunity costs of investing in non-yielding bullion.

Juan Carlos is also expecting increasing investments in gold ETFs as he mentioned that "we expect gold ETF investment demand to continue its strong momentum in H2 as concerns over COVID-19 economic impact and infection rates linger, gold price performance remains solid and accommodative monetary policy heightens risk-off sentiment,” per the report.

Gold ETFs to Continue Shining

Yellow metal investments have been popular this year due to the coronavirus outbreak. Notably, the global stash of gold in ETFs touched the highest level in seven years in the middle of the first quarter of 2020.

Gold ETFs mostly move in tandem with gold prices. The SPDR Gold Shares GLD, iShares Gold Trust IAU, SPDR Gold MiniShares Trust GLDM and GraniteShares Gold Trust BAR are some of the popular ETFs. These funds carry a Zacks ETF Rank #3 (Hold). Below we have discussed these in detail:

GLD

This is the largest and most popular ETF in the gold space, with AUM of $68.46 billion and average daily volume of 13 million shares. The fund reflects the performance of the price of gold bullion, less the Trust's expenses. At launch, each share of this ETF represented about 1/10th of an ounce of gold. The expense ratio is 0.40% (read: Most-Loved and Hated ETFs of First-Half 2020).

IAU

This ETF offers exposure to the day-to-day movement of the price of gold bullion. It has AUM of $26.33 billion and trades in a solid volume of 25.9 million shares a day, on average. At launch, each share of this ETF represented about 1/100th of an ounce of gold. The ETF charges 25 basis points (bps) in annual fees (read: ETF Strategies to Brave the Second Wave of Coronavirus Infections).

GLDM

This product seeks to reflect the performance of the price of gold bullion, less GLDM’s expenses. Being one of the low-cost products with an expense ratio of 0.18%, GLDM has accumulated $2.61 billion in AUM and trades in average daily volume of 2.7 million shares. At launch, each share of this ETF represented about 1/100th of an ounce of gold (read: Gold Beats Stocks & Bonds in 1H: ETFs to Play).

BAR

With AUM of $1.05 billion and an expense ratio of 0.17%, the fund tracks the performance of gold price less trust expenses. It trades in a moderate volume of 441,000 shares per day, on average. At launch, each share of this ETF represented about 1/100th of an ounce of gold (see: all the Precious Metal ETFs here).

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SPDR Gold Shares (GLD): ETF Research Reports
 
iShares Gold Trust (IAU): ETF Research Reports
 
GraniteShares Gold Trust (BAR): ETF Research Reports
 
SPDR Gold MiniShares Trust (GLDM): ETF Research Reports
 
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