• Investors flocked to the perceived safety of the yellow metal as fears around the global pandemic spread
• Gold price increases throughout 1Q2020 as real yields fall
• Several gold opportunities for Middle East investors
Dubai, United Arab Emirates, 25 June 2020
A record USD15.4 billion in gold was purchased by exchange traded funds and similar products in Q1 2020 globally, equivalent to 298 tonnes, according to a new market report from Invesco. The volume highlights the depth of the coronavirus-led market shift towards ”safe haven” assets and the central role that exchange-traded products (ETPs) have played in supporting investors at this key time.
The finding comes from the inaugural Invesco Gold Report, the first in a new series of quarterly reports on the gold market. While 341 tonnes of gold were purchased by ETPs in Q1 2016, the high price of gold in the first quarter of this year meant the overall value was the highest on record.
Two of the most widely used instruments for gaining exposure to the gold price are futures and physical gold ETPs. According to the study, demand for gold via ETPs increased by over 300% year-on-year when comparing Q1 2019 with Q1 2020. Due to a relatively soft Q4 2019 when investor appetite in gold fell, the demand for gold from exchange-traded products increased by about 1,000% quarter-on-quarter. While the assets in the ETP are backed by the commodity, the ETP gives an investor exposure to the price movements of gold without owning the physical precious metal.
In terms of performance, the spot gold price returned 3.9% in USD for Q1 this year, second only to US Treasuries among the major asset classes. Of those considered in the report, gold was the best-performing asset for the 12 months to the end of March 2020, with a return of 22.0% in USD.
The Invesco study notes that central banks increased their holdings of gold by 145 tonnes during the quarter, down by 8% compared to the amount purchased during Q1 2019 but an increase of 34.4% compared to Q4 2019. Central banks have been net purchasers of gold every year since 2010, as many of them, particularly in developing economies, look to hedge various risks and diversify their exposures.
Chris Mellor, Head of EMEA ETF Equity and Commodity Product Management at Invesco, said: “Gold has been the stand-out asset class for much of 2020 and demand is expected to continue as markets and investors cautiously deal with the fall-out from the coronavirus.
“Despite such strong investor demand, it is interesting to note that gold supply fell 10.7% in the quarter as the outbreak disrupted mine production and transportation links between global hubs. With temporary shutdowns, the amount of gold mined in the quarter was the lowest since 2015. These restrictions associated with coronavirus also negatively affected recycled gold levels. This situation as related to logistical dislocation can be expected to continue into the next quarter.”
Alessio Cirillo, Sales Director at Invesco EMEA, said: “Gold has always been topical for investors in the Middle East. Most investors buy gold as a hedge against inflation and high economic uncertainty, with some investors looking for asset appreciation. Globally, gold ETFs are recording record inflows as investors sought out liquid investment products to gain exposure to gold. There are several shariah compliant gold ETFs available on the market, which are positioned to help capture a large investor segment in the region.”