SINGAPORE (Aug 13): Global demand for gold-backed Exchange Traded Funds (ETFs) hit a six-year high in 2Q19 ended June, growing 67.2 tonnes to hit 2,548 tonnes.
Year on year, gold-backed ETF demand was double from the 33.8 tonnes bought in 2Q18, according to the Gold Demand Trends report for 2Q19 which was released on Aug 1 by the World Gold Council.
The significant inflows were led by a 75% increase in UK-listed ETFs, on the back of Brexit concerns and currency weaknesses, says the council.
“Investors sought the safe haven of gold amid the uncertainty surrounding Brexit and the leadership battle that followed Theresa May’s resignation as Prime Minister. The sharp drop in the value of the pound also fuelled inflows during the quarter as the UK’s growth prospects were cut following repeated failures in Brexit negotiations,” the report notes.
European-listed ETFs grew by 87.2 tonnes in 1H19, with 2Q19 adding 67.2 tonnes.
Back here in Singapore, demand has been fairly consistent throughout the months, with the number of SPDR Gold ETFs – the only ETF traded on the Singapore Exchange – growing some 1.4% between January and June. However, SPDR Gold ETFs saw a 1.35% drop q-o-q in the number of units traded to 2,821 from 2,859.
Comparatively, equities performed better in Singapore than in Hong Kong. Data from the Hong Kong Stock Exchange shows that there was a 5.34% q-on-q drop in the number of shares traded from 1,109 in 1Q2019 to 1,049 in 2Q2019. This is amid lower trading activity due to the ongoing protests there.
Robin Tsui, APAC gold strategist at State Street Global Advisors, tells The Edge Singapore that the recent uptake in gold-backed ETFs is motivated by higher purchases of the precious metal by central banks.
The WGC report showed that central bank demand for 1H19 totalled 374.1 tonnes – the highest level since the council became net buyers in 2010. Purchases rose 47% to 224.4 tonnes in 2Q19 from 152.8 tonnes in 2Q18.
Poland was the largest purchaser in 2Q19, with its reserves growing 77% to 100 tonnes.
Singapore’s reserves stand at 127.4 tonnes, the same amount held in 1Q19.
While gold appears a safe haven asset in the wake uncertain global economic conditions and a badly-performing stock exchange, Tsui says the surge is also due to the multitude of gold options available, which give investors much choice.
“I think it really depends on what the investors want. There are gold-backed ETFs which can be traded through a mutual fund or bank account or investors can buy jewelry, bars and coins,” he says.
However, Tsui agrees ETFs appear the preferred choice to acquire gold. “Demand for ETFs has grown and that is because people find it very easy to trade it because you are literally just buying a stock – so you can trade through your brokers or even your phone. This is unlike physical gold, which requires you to go to a physical store and think about storage”.
In addition, Tsui says ETFs are cost-effective because on average “they charge a management fee of 0.18% to 0.4% per year, depending on the type of ETF”. The fees include storage, transportation and management and it is actually very low”. He expects this cost to be lower than the amount charged for storage of gold.
Finally, the recent decision by the US Fed to cut interest rates by 25 basis points is good news for gold prices which might still have some up upside surprise.
