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LAWRIE WILLIAMS: Gold ETFs seeing massive inflows

In a recent post we incorporated the following quote from one of Ed Steer’s recent daily newsletters, and I make no apologies for repeating it as I feel it is so pertinent for those who may be seeking to protect their wealth against what we feel is to come: “One thing is absolutely crystal clear to me -- and should be to you" says Ed "and that is if the big money/deep state players are piling into physical precious metals via the various mutual funds and ETFs, it's a good bet that we should be doing it as well” . 

Now the World Gold Council (WGC) has come up with a statistical report demonstrating how enormous global gold ETF inflows actually were in April, following a big increase month-on-month throughout Q1, and we have also noted that the inflows, as reported in each successive edition of Ed’s newsletters, show little sign of slowing down in the current month, despite a somewhat erratic gold price.  Ed always records the daily inflows into, or outflows from, the largest of the gold ETFs, SPDR Gold Shares (GLD) in the U.S., alongside the cumulative reports of flows into, or out of, the remainder of the world’s gold ETFs.  From these figures one can keep abreast with what is happening to gold flows into, or out of, the global gold ETF sector almost on a daily basis.

Ed also similarly reports inflows and outflows for the global silver ETF sector.  These too have mostly been very positive so far this year, but as befits the silver market have been rather more volatile than the gold ETF figures.

But back to the World Gold Council report on gold ETF flows in April.  The data published reported an absolutely enormous inflow of some 170 tonnes of gold into the gold ETF sector in a single month, worth $US9.3bn (+5.1%) – boosting holdings to a new all-time high of 3,355 tonnes.1 Thus inflows have been strong and consistent in recent months, but the cumulative levels have not been unprecedented. Rolling twelve-month inflows of 879 tonnes only just surpassed those of 2009 and 2016, while rolling six-month inflows are less than two-thirds of the 457 tonnes of inflows in the comparable time periods of 2009 and 2016.  But it should be noted that the latest 6-month inflow totals also covered an outflow of around 29 tonnes back in November last year, since when inflows were relatively small in January and February, but have been ever higher month-on month since November-last as the global COVID-19 virus spread has impacted the global economy.

We don’t see the flows into the gold ETFs diminishing significantly in the days, weeks and months ahead as the true longer term economic effects of the virus lockdowns in Europe and the U.S. sink in, although they could plateau at a high continuing level. 

In our opinion the occasional equity price advances in the major economies have been overdone and the long term impact on the earnings of most companies looks to us to be pretty horrendous.  Gains have largely been restricted to the tech and precious metals mining sectors and with the former absolutely dominating the U.S. equity indexes we could yet be on the brink of another tech sector equity bubble collapse.  Profit gains in the biggest tech stocks have not necessarily been quite as the market anticipates, while some of the other high flyers have actually been adversely affected, although still dragged up by the assumed gains by the FAANG stocks.  Mega-investing entities like the Swiss National Bank have apparently been increasing their massive exposure to the U.S. tech sector despite seeing the net asset value of their overall holdings fall dramatically.

Bitcoin has also seen gains, but we tend to see that as a bit of a Ponzi system and wouldn’t recommend the sector at all.  It is very much sentiment-driven and prone to massive value fluctuations given there is no real substance behind it. 

We still see gold as the safest counter to invest in for wealth protection.  It may not have the upside volatility associated with bitcoin, but then the downside risk potential is far lower.  It has stood the test of time as a principal protection against currency debasement, and the huge debt levels now being built up by major economies to try and mitigate the adverse economic effects of the virus, and measures taken to control its spread, have to lead to longer term currency debilitation through inflation.

So far we have only seen the adverse effects on the major economies of the Q1 figures, coupled with seemingly ever-rising unemployment as vulnerable businesses give up their struggle to maintain employment levels.  Q2 economic figures are sure to be far worse than those for Q1 and any recovery in the second half of the year is almost certain to be hugely less positive than the optimists would have us believe.  Some significant sectors of the economy may take years to recover, if they ever do, as the long term impact of the virus causes some major changes in the way people will live their lives from now on.

Gold, as perhaps the ultimate safe haven, tends to thrive on uncertainty, and if one thing is for sure we are currently living in hugely uncertain times!

10 May 2020 | Categories: Gold

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