Gold-backed exchange-traded funds (ETFs) and comparable merchandise had what the World Gold Council (WGC) known as “a outstanding yr” in 2020, as gold ETFs had recorded yearly web inflows of $47.9-billion, or 877 t, collectively growing gold holdings by over a 3rd and reaching all-time highs in tonnage (3 752 t).
Whereas the ultralow rate of interest surroundings drove inflows in January and February 2020, the worldwide unfold and severity of the Covid-19 pandemic from March onwards boosted curiosity in gold, the council states.
The heightened danger surroundings, fiscal and financial responses to the financial influence of the pandemic, and gold value momentum continued to drive inflows effectively into the second half of the yr, although the tempo of inflows slowed after the gold value hit a brand new file excessive – above $2 000/ouncesin early August – earlier than reverting to the $1 900/ounceslevel.
The power in demand for gold ETFs was additional underscored compared towards different types of bodily gold funding. The WGC says that, in response to the pandemic, demand for bars and cash was combined, resulting in power in western markets and weak point in japanese markets earlier than recovering within the third quarter.
Consequently, over the primary three quarters of 2020, gold ETFs accounted for nearly two-thirds of complete funding demand.
“That is considerably larger than any earlier full yr. Gold ETF demand was additionally equal to 1 / 4 of the common [yearly] gold mine manufacturing over the previous 5 years.”
Nonetheless, as traders decreased hedges and elevated risk-asset publicity amid constructive sentiment following the US election and the announcement of profitable Covid-19 vaccines, there have been sizeable outflows of 109 t in November, and whereas outflows continued into December, they slowed significantly and had been modest by comparability, at 40 t.
In distinction to the primary three quarters of 2020, which noticed a cumulative 1 007 t added to world belongings underneath administration (AUM), the fourth quarter had web outflows of 130 t.
Total, the gold value elevated by 25% throughout 2020, hitting a historic excessive of $2 067.15/ounceson August 6.
Regardless of dropping 12% in March, when markets had been rocked by the onset of the Covid-19 pandemic, gold recovered to complete the yr among the many best-performing belongings, regardless of many inventory indices reaching or surpassing all-time highs.
The council notes that gold’s volatility throughout the yr was additionally larger, with annualised volatility at 20%, the very best degree since 2013 and considerably above the longer-term common of round 16%.
Nonetheless, the rise in gold’s volatility must be seen within the context of the volatility of all belongings, the WGC advises, stating that almost all belongings skilled higher volatility final yr.
Gold buying and selling volumes additionally elevated, with the 2020 day by day quantity common of $182.7-billion being considerably above the 2019 common of $145.7-billion.
“Even gold’s lowest buying and selling volumes for the yr – which occurred throughout April or the comparatively muted December – had been nonetheless fairly sturdy, buying and selling on common $139.9-billion and $143.2-billion, respectively.”
Web lengthy positioning of Comex gold futures fell to an yearly low of 716 t in November however recovered to 816 t by year-end, which the WGC says was the very best degree since September, under the yearly common of 873 t, “however considerably above the long-term ten-year common of 529 t”.
“Typically talking, web longs had been larger all year long due to constructive value momentum, which attracted traders and speculators.
“We consider web longs didn’t end the yr at or above the all-time highs of 1 209 t, which had been seen earlier within the yr, as a result of the dislocation of the Comex futures market from the over-the-counter (OTC) market, which occurred in March, made it costlier to carry futures in comparison with different selections like OTC and gold ETFs. Many traders seemingly migrated futures into OTC or gold ETFs, or seemingly shifted out of the gold market altogether.”
For this yr, the WGC forecasts that most of the similar drivers of gold demand, akin to decrease charges and improved alternative prices, fiscal stimulus, lofty inventory valuations, and the financial results of Covid-19, are prone to proceed.