Market Overview

ETF Demand Propped Up Gold In Q3

ETF Demand Propped Up Gold In Q3

In the third quarter, gold jewelry demand slumped. So did appetite for bullion bars and coins, but exchange traded funds, such as the SPDR Gold Shares (NYSE: GLD) picked up the slack.

What Happened

In a note out Tuesday, the World Gold Council confirmed global gold ETFs offset weakness in the jewelry and bar/coin markets in the July through September time frame.

“A surge in ETF inflows (258t) outweighed weakness elsewhere in the market to nudge gold demand 3% higher in Q3,” WGC said. “Although central bank buying remained healthy, it was significantly lower than the record levels of Q3 2018.”

Increased demand for gold ETFs in the third quarter came amid a spate of interest rate cuts by global central banks, including two by the Federal Reserve. Lower interest rates boost the allure of gold because the yellow metal doesn't pay interest or coupon payments.

Why It's Important

In the third quarter, investors allocated $6.04 billion to GLD, by far the largest inflow tally during that period among all commodities ETFs and one of the best hauls of any U.S.-listed ETF regardless of asset class. During the third quarter, gold ETF holdings reached an all-time high.

“Holdings grew by 258.2t during the quarter, the highest level of quarterly inflows since Q1 2016. Accommodative monetary policies, along with safe-haven and momentum buying, drove demand,” according to the WGC.

GLD wasn't the only beneficiary of that theme. Investors also put money to work with lower-fee gold products, including the SPDR Gold MiniShares Trust (NYSE: GLDM). GLDM, which recently topped $1 billion in assets under management, saw third-quarter inflows of nearly $215 million.

GLDM charges just 0.18% per year, or $18 on a $10,000 investment, compared to 0.40% on GLD.

What's Next

Although gold's price has recently retreated as investors moved toward riskier assets, the yellow metal could be in for more upside in 2020 as interest rates remain low and if uncertainty surrounding the outcome of the 2020 presidential election rises.

“The gold price rose by 5% during Q3, finding sustained support around US$1,500/oz,” WGC said. “The primary factors behind this price momentum continued to be ongoing geopolitical tensions, concerns of a slowdown in economic growth, lower interest rates and the level of negative yielding debt.”

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