Gold ETFs Reach Seven Year High - More Than Just the Coronavirus

At a time of low-interest rates, the global stash of gold in exchange-traded funds (ETFs) hit the highest level in seven years as the impact of the coronavirus on markets and sentiment reinforced demand for havens

The latest influx into bullion-backed ETFs follows four straight years of inflows and comes as prices trade near the highest levels since 2013. The number of confirmed virus cases in China has soared to overtake the official number of infections during the SARS epidemic, and since the time of this writing, at least 213 people have lost their lives.

Gold has risen this year as the outbreak of the deadly virus threatens to harm the world economy, prompting volatile equity trading amid swings in investing sentiment. The traditional haven has also been in favour as the Federal Reserve has signalled interest rates are likely to remain low for some time, while it boosts its balance sheet to relieve strain in money markets. Right now, real U.S. rates are negative, which cuts the opportunity cost of holding bullion.

“Even if the coronavirus situation improves, there are good reasons to expect continued inflows into gold,” said Nicholas Frappell, Global General Manager at Sydney-based ABC Bullion and ABC Refinery. Other factors remain, including the Fed’s growing balance sheet, low real rates, and a reluctance to “normalize” policy at the Fed, the Bank of Japan and European Central Bank, he said.

Worldwide gold holdings in ETFs rose to 2,561.2 tons as of Tuesday, the highest level since January 2013, according to data compiled by Bloomberg. They peaked at 2,572.8 tons in December 2012.

The spot price was at $1,569.31 an ounce on Wednesday, up 3.4% in January, after an 18% jump last year that was the biggest annual gain since 2010.