Gold News

Gold ETFs Surge as Covid Crisis Crushes Asia's Already-Weak Demand

BULLION PRICES eased back Wednesday after setting new 7-year highs in US Dollars and fresh all-time highs in Euros as gold-backed ETF trust funds expanded yet again amid the Coronavirus economic shutdown.
 
Global stock markets failed to follow Wall Street higher, losing more than 2.5% for the day in Europe, after the International Monetary Fund forecast a 3% drop in world GDP for 2020 – the worst since the 1930s' Great Depression.
 
Major government bond yields also fell, as did industrial commodity prices, with silver prices erasing almost all of this week's previous 2.8% gain back down at $15.42 per ounce.
 
Gold prices today bottomed $40 per ounce below Tuesday's new 7-year Dollar high of $1747, rallying to $1718 as New York opened for business.
 
That saw the giant SPDR Gold Trust (NYSEArca: GLD) – the world's largest gold ETF, charging 0.40% in annual management fees – slip 0.6% from yesterday's closing price.
 
Data compiled by Bloomberg say that bullion-backed trust funds traded on the world's stock markets saw inflows of investor cash for the 17th session in a row on Tuesday.
 
The size of such gold-backed ETF products, represented by the change in how much bullion they need to back their value, shows a strong and growing correlation with moves in the gold price.
 
Between 2003 – when such products first launched – and the end of 2018, the price of gold moved up or down together with the size of gold-backed ETFs worldwide 73.8% of the time on a 3-month basis.
 
That figure has since risen to 93.8%.
 
Chart of gold-backed ETF holdings, 3-month change, versus the Dollar gold price. Source: BullionVault via WGC
 
With the European Commission today outlining what it called a "roadmap" to exiting the social and economic lockdown imposed to stall the outbreak of novel coronavirus, badly-hit Italy allowed some stores selling non-essential items to re-open, while opposition politicians in Spain accused the government in Madrid of creating new panic and confusion by lifting some measures.
 
Germany's federal government said most of its anti-Covid measures will stay in place for another 20 days, including its blocks at the country's borders, with only smaller shops and cultural institutions with a lot of space allowed to open, but with a target of re-opening schools and universities in May.
 
Statistics out of Belgium meantime showed that deaths in old-age care homes are running almost level with the number of Covid patients dying in hospital, but with testing for the disease missing 97% of such cases.
 
Gold priced in the Euro today rose back to Tuesday's new all-time highs above €1581 per ounce, while the British Pound price held 1.5% below February's top, trading at £1380.
 
Over in China – source of the coronavirus outbreak, and No.1 gold consumer nation – gold prices on the Shanghai Gold Exchange today fell to a fresh all-time discount compared to the global benchmark of London quotes.
 
The second such record in 2 days, and coming after China vanished from the UK's latest gold import and export flows figures, the discount suggests very weak demand versus ample local supply.
 
Chart of Shanghai Gold Exchange's premium/discount to London prices. Source: BullionVault
 
"Fund managers [in Asia[ are seeking to drum up interest for gold as an asset class among retail investors," says the South China Morning Post, reporting how GLD promoter State Street Global Advisors is halving the number of gold ETF shares needing to be traded in 1 lot of its Hong Kong-listed offering, bringing the cost to private investors nearer to 1 ounce of gold.
 
India's Coronavirus lockdown extension is also hurting demand in the metal's No.2 consumer nation, cancelling the spring wedding season and putting "at stake the livelihood of millions of gig workers who provide wedding-related services," notes the Business Standard, including "jewellers, designers, tailors, caterers, pavilion and tent providers."
 
India gold prices today hit fresh all-time record highs, says LiveMint, worsening the metal's affordability for consumers, while a survey of 500 poorer households in western India's key city of Ahmedabad said 40% families were facing food or medicine supply-related issues, with 74% not having no regular income since the lockdown began.
 
Data compiled by specialists Metals Focus for the mining-industry's World Gold Council say that between them Chinese and Indian households bought 1 ounce of gold in every 2.5 sold worldwide during the 2010s.
 
That fell however to 1 ounce in every 3.1 during 2019.

Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn

 

 

scri

Market Fundamentals