Gold-backed ETFs grew more than 400% in 2019

Inflows into gold-backed exchange-traded funds (ETFs) grew more than 400 per cent year-on-year in 2019 on the back of “low interest rates and geopolitical uncertainty”, a new report from the World Gold Council found. The precious metal's high prices, however, drove consumer jewellery and retail demand lower, with overall gold demand falling 1 per cent, from 4,401 tonnes in 2018 to 4,355.7 tonnes last year, according to the Gold Demand Trends report released on Thursday. ETFs grew 426 per cent from 76.2 to 401.1 tonnes at the end of last year. “Demand for gold-backed ETFs surged in 2019 as investors sought to diversify their portfolios and hedge against uncertainty in other markets. These inflows, along with a sharp increase in futures positioning, saw the US dollar gold price reach a six-year high,” said Alistair Hewitt, head of market intelligence at the World Gold Council. “But retail investment and jewellery demand sank, partly due to the rapid price rise in the second half of the year,” he added. Jewellery demand fell 6 per cent from 2,240.2 tonnes to 2,107 tonnes, while bar and coin investments declined 20 per cent from 1093.6 tonnes to 870.6 tonnes. The gold price averaged $1,481 per ounce in the fourth quarter of 2019, the highest quarterly average since the first quarter of 2013, the report said. Gold prices edged higher on Thursday after US Federal Reserve Chair Jerome Powell’s comments that the new coronavirus could impact China’s economy in the short term, boosted the safe-haven metal’s appeal. Spot gold rose 0.1 per cent to $1,577.64 per ounce at at 10:13am UAE time and US gold futures gained 0.5 per cent to $1,577.90. Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, rose 0.5 per cent to 903.50 tonnes on Wednesday. The coronavirus outbreak, which started in the Chinese city of Wuhan, has so far left 170 people dead, infected more than 7,700 and spread to at least 15 other countries. "China is the world's largest gold consumer and any impact on economic growth and consumer spending might influence jewellery demand," Mr Hewitt said in an email to The National . "However, slowing global growth could prompt gold investment demand." Gold consuming giants China and India accounted for 80 per cent of the year-on-year decline in jewellery and retail investment demand, down 10 per cent and 16 per cent respectively, according to the World Gold Council’s report. “High gold prices and a softer economic environment were the main culprits,” the report said. The increase in gold-backed ETFs, mainly fuelled by monetary policy and geopolitics, pushed global holdings to a record year-end total of 2,885.5 tonnes with the previous high set in 2012. North American funds saw the largest increase in 2019, adding 206 tonnes worth $10.1 billion (Dh37bn), as the Federal Reserve cut rates three times and US-China trade tensions were at the forefront. European funds added 188 tonnes worth $8.8bn, half of which was directed into UK-based funds on the back of ongoing Brexit concerns. Asian funds finished the year relatively flat. Central banks were net buyers for a 10th consecutive year as global reserves grew by 650.3 tonnes (down 1 per cent year-on-year), the second highest annual total for 50 years. Central bank buying slowed in the fourth quarter, declining 34 per cent year-on-year, although “this was partly a reflection of the sheer scale of buying in 2018”, the report said. Total annual gold supply edged up 2 per cent to 4,776.1 tonnes, mainly due to an 11 per cent jump in recycling, as consumers capitalised on the sharp rise in the gold price in the second half of the year.