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What Wall Street Rally? Gold ETFs Brimming With Assets

Sanghamitra Saha

The global investing scenario has turned tricky of late. The global growth slowdown has been forcing central banks to adopt easy money policies, which in turn is propelling stocks higher. SPDR S&P 500 ETF SPY has added about 4.8% in the past month (as of Nov 6, 2019) and has jumped 6.6% in the past three months.

But that did not dissuade investors from seeking safe products. The fear factor can be felt by the all-time high holdings in gold-backed ETFs in the third quarter. Demand from US-listed ETFs was particularly strong during the third quarter, per the WGC, as quoted on Wall Street Journal. Investors should note that gold is viewed as a safe-haven asset.

SPDR Gold Trust GLD, the world’s biggest gold ETF, saw net inflows of $6.05 billion in the third quarter of 2019. Though the latest month-long Wall Street rally has hurt demand slightly, assets in GLD are still heavy. The fund has lost only $226 million in assets since October amid investors’ renewed interest in equities and rally in bond yields.

Notably, gold has been one of the best-performing commodities of 2019, gaining about 18% to a six-year high of above $1,500 an ounce. Another prominent gold ETF iShares Gold Trust IAU added about $2.29 billion in assets in the third quarter.

Will Gold Glitter Ahead?

“Gold inflows are likely to persist,” per Citigroup Inc. and the metal is expected to hit $1,700 an ounce over the next six to 12 months. Below we highlight a few factors that should keep the metal shining.

Uncertainty in Trade Deal

Per the recent developments, chances of postponement of the Sino-US ‘phase 1’ deal signing to December 2019 have increased. Lack of material progress in the Sino-U.S. trade deal is likely to leave market participants jittery and increase the appeal for safe-haven assets like gold (read: Phase 1 Trade Deal or Not: ETFs to Ride the Trend).

The U.S.-China trade war will drag 2019 global growth down to the slowest pace since the 2008-2009 financial crisis, per the International Monetary Fund. The IMF sees 2019 GDP growth at 3.0%, down from 3.2% in a July forecast.

Even if any deal is signed, after the recent rally, Morgan Stanley’s Garner believes that the U.S.-China partial trade deal is now priced in. Any disappointment in investors’ expectations related to the trade deal could derail market momentum and veer investors toward gold ETFs (read: Are Investors "Buying Dreams," Not Earnings? ETFs to Play).

Demand From PBOC

India and China are two of the biggest buyers of gold. Though India saw a sharp slump of 32% in jewelry demand in the third quarter, demand from China is still decent. Jewelry demand in China dropped 12% in the third quarter, but the “People’s Bank of China continued to store gold. It raised “holdings to 62.64 million ounces in September from 62.45 million in August.” In tonnage terms, “the latest inflow totals 5.9 tons, and follows the addition of about 99.8 tons over the prior nine months.”

Some Soft US Economic Data Points

The U.S. manufacturing reading for the month of October marks a contraction for three months in a row. Recent data for retail sales and home sales have also been downbeat. These point to a still-uncertain economic backdrop.

US Presidential Election in 2020

Last but not the least, the U.S. Presidential election due in November 2020 will likely make markets edgy. This, in turn, will keep boosting gold prices. Hence, prepare for a gold rush next year.

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