Every now and then the World Gold Council releases figures on gold demand by country, central bank purchases, and a host of other areas.
Their most recent release – net flows into and out of gold-backed ETFs provide an interesting view of where demand is coming from and where demand declined.
What is an ETF?
Before going into the details of the money that flows into gold-backed ETFs, it seems prudent to answer what an ETF is. An ETF is an exchange-traded fund. What is an exchange-traded fund? An exchange-traded fund is an asset, similar to a stock, that trades on a formal public exchange. Some individuals prefer exchange-traded funds over owning the actual asset because they can easily sell or buy into the gold-backed ETFs at a moment’s notice.
The demand for gold-backed ETFs happens even with the fees ETFs charge their clients. If one were completely cost-conscious on investments, one would opt for placing one’s gold holdings in an account with fees that are kept to a minimum.
Back to the Question at Hand
Shifting back to the question at hand. Where did demand for gold-backed ETFs stem from 2003 to 2019?
The following has such a looking.
The data, from the World Gold Council, shows how investors flowed money into and out of gold-backed ETFs by area.
The left axis is the change, in tonnes, of demand for gold-backed ETFs. The right axis is the total amount of assets under management (AUM), measured in tonnes as well.
As shown, there was very little demand for gold-backed ETF in 2003.
In 2004, American and European demand started slowly gaining steam. The demand continued to grow from 2005 through 2008.
Then, in 2009, demand exploded. Overall change in demand across the globe increased by more than 600 tonnes. This brought total assets under management in gold-backed ETFs to around 2,000 tonnes.
Demand kept grown after the recession-induced 2009 bump. Overall, assets under management increased to a high of almost 3,000 tonnes in 2012.
From 2013 to 2015, assets under management declined a bit, bottoming in 2015 at about 1,600 tonnes.
From 2016 through the first part of 2019, demand has continued to grow. The World Gold Council’s current estimate of gold-backed ETF’s assets under management is close to 2,500 tonnes.
The Area Breakdown
Perhaps even more interesting than the overall trend in gold-backed ETF demand is where the demand has come from. Although Asia has a large user base for actually using gold, Asians had little demand for gold-backed ETFs. Instead, almost all of the demand for the precious metal stemmed from North America and Europe. These two countries accounted for over 90% of all gold-backed ETF demand.
Conclusion
Overall, the gold-backed ETF business appears here to stay. There is growing demand from investors for very liquid precious metal asset classes, gold being perhaps chief among them.
