Gold ETFs reap benefits of precious metal momentum

Australian exchange traded fund (ETF) provider, Global X ETFs, is bracing for further gold price records to be smashed in the form of ETF inflows, as investor appetite for precious metals continues to surge.

The price of gold has continued its upward trajectory following last week’s record set at US$3,575, with a new high of US$3,715 seen only two nights ago.

This comes as investors consider and react to expectations of a reduction in the official US interest rates next week, concerns over stagflation and ongoing geopolitical tension, combined with a spike in central banks topping up their gold reserves.

Global X Investment Strategist, Justin Lin, said investors could break ETF inflow records with their demand for gold opportunities, especially after pouring $660.3 million into physical gold ETFs listed on the Australian Securities Exchange (ASX) in the 12 months to September.

“Given the strong momentum and constructive environment for gold, it is highly possible that we could see a record year for physical gold ETF inflows in Australia this year,” he said.

“While the $660 million figure is not yet record-breaking, flows are on-pace to exceed the record year of 2020 where we saw $982 million in net inflows into physical gold ETFs.

“We expect gold to head even higher as we are seeing a strong secular bull market. Our year-end gold price target is US$4000 per ounce.”

Lin said lower interest rates create an attractive environment for investors to hold increased gold and silver exposures, as demand spikes among “new entrants” such as Asian or Chinese ETF investors and central banks in particular.

“Western ETF participation, by contrast, has been low. Looking back over the past 20 years, global ETF inflows have typically risen when real yields and interest rates moved down,” Lin said.

“With rate cuts increasingly expected by September, there is now a strong catalyst for under-allocated Western investors to step in and start accumulating gold, potentially adding a new leg of demand to an already strong market.

“The US dollar remains under pressure this year, as US President Trump ramps up his attacks on the US Fed’s independence. History shows that an independent central bank is more effective at keeping inflation under control, maximising employment and ultimately supporting a stronger local currency. A weaker USD tends to be positive for gold.

“While some investors might turn to gold bars from the local mint for investment, ETFs provide a much simpler way to access commodities like gold and silver with daily liquidity and not having to worry about storage/insurance.”