The key cog missing from gold investment during the past few lean years is now returning with bang: ETF inflows.
Gold ETFs (also called ETPs) are no substitute for a long-term core holding of physical bullion, but watching the performance of these investment products can tell us a lot about current sentiment toward the yellow metal.
Why? Because gold tends to attract interest when stocks are falling, and conversely, when equities are rising, bullion tends to suffer. As stocks ascended to new all-time nominal highs on the back of the Federal Reserves quantitative-easing and zero-interest-rate policies, interest in gold lagged.
$1,400 price target quite imaginable: Now, though, the rush into gold in 2016 is gathering pace as investors seeking a haven boosted holdings to the highest level since March, Bloomberg reported.
This past Friday, gold ETF products saw inflows of 25.39 metric tons, or a 1.6% surge, bringing total holdings to 1,640.81 tons. In percentage terms, thats the biggest one-day influx since May 2010, the news agency reported.
The sharp rise in the gold price this year is only the beginning of the whole drama, Wing Fung Financial Group researcher Mark To noted, arguing that a price target of $1,300 to $1,400 is quite imaginable in the coming months.
Europeans, Chinese turning to gold: Meanwhile, Barrons also commented on the rush into ETFs in a Feb. 20 article. Today, investors around the world are panning for gold via exchange-traded funds, and the growing availability and popularity of ETFs that own the actual metal for European and Chinese investors will help keep golds luster, Chris Dieterich wrote.
Now, some $2.5 billion has roared into the SPDR Gold Shares in 2016, while the iShares Gold Trust ETF has taken in another $1 billion. The end result has been that inflows into bullion-backed ETPs this year have also topped outflows in all of 2015, confirmed U.S. Global Investors chief Frank Holmes.
Moreover, the global complexion of gold ETF owners has changed in recent years, Dieterich added, with European and Chinese ETFs now accounting for a sizable portion of market share. It could be the flood of overseas ETF buyers helps buoy the current rally.
Asian consumption of gold has been firmly established. The resurgence of physical gold and silver buying is on the upswing, as evidenced by U.S. Mint coin sales. And now it looks like the momentum-chasing stock investors are losing faith in equities and seeking safety in precious metals. Interest from mainstream, primarily Western, stock investors has been whats missing in the gold market since the price peaked in 2011. Now the tide appears to be turning in a bullish way.
Note: Although gold ETFs are a convenient way to invest in the metal, they arent necessarily the best way to do so. An investors core stake in gold should always be in physical bullion bars and coins. For more on the difference between gold bullion and gold ETFs, click here.