Daily Management Review

ETF funds are increasing investments in gold


01/23/2019


The total assets of funds investing in gold have updated the five-year maximum, exceeding the mark of 2.25 thousand tons. Uncertainty about prospects for the world economy in 2019, as well as expectations of a slowdown in the rate of growth of the Federal Reserve System (FRS) are forcing investors to increase investments in the precious metal.



Andrzej Barabasz (Chepry)
Andrzej Barabasz (Chepry)
Assets of exchange-traded index funds investing in gold have updated a five-year maximum. According to Bloomberg, according to the results of Friday's trading, they grew by almost 15 tons, to 2,253 tons. This is the maximum value since April 22, 2013. For three months of steady growth, the assets of the funds increased by 164 tons, and the growth reached 43 tons only from the beginning of this year. The main gain fell on the world's largest exchange-traded fund SPDR Gold Trust, which assets grew over three months by 78 tons, reaching almost 810 tons. At the same time, gold prices for this period increased by 5% to $ 1,280 per ounce and are near the semi-annual maximum.

Increased investment demand for the precious metal contributed to investors' concerns about the prospects for the global economy. On Monday, the IMF published a new estimate of global economic growth in 2019, lowered from 3.8% to 3.5%. The expectations of a slowdown in growth due to the trade confrontation between the United States and China are evidenced by data from a January survey of portfolio managers conducted by analysts at Bank of America (BofA) Merrill Lynch. Gold is traditionally viewed by investors as a safe haven, where they can wait out periods of sharply increasing volatility on global stock markets and investors' concerns about a slowdown in the global economy.

Investor interest in the precious metal was also spurred by lowered concerns about US interest rates. On January 9, the Fed published the minutes of the December meeting, which noted growing risks of increase in the base rate in the country. The next day, Fed Chairman Jerome Powell at a meeting of the Economic Club in Washington confirmed that now the regulator should become more “patient and flexible” in its monetary policy. The soft rhetoric of the American regulator affected investors' expectations regarding growth of the rate in 2019. At the very end of last year, the market was waiting for two rate hikes, now expectations have shifted towards fewer rises. According to a consensus forecast of Bloomberg, the highest probability of a Fed rate hike in 2019 reaches only 27%.

In the coming days, investors will follow the ongoing shutdown in the US, which led to the longest partial shutdown of the government and all government services in history due to lack of funding. Fitch Ratings has already warned about risks to the US creditworthiness, noting that if it drags on, the country risks losing the highest AAA rating.

source: bloomberg.com






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