Investors are dismayed the price of gold has stayed muted during a period of extreme volatility. As stocks plummet, investors have failed to rush into the physical metal. Rather, North American investors are piling into paper gold or gold-backed ETFs at an alarming rate.

 

First of All – Investors Sell Gold to Cover Margins

George Milling-Stanley, Head of Gold Strategy for State Street Global Advisors believes investors are selling gold to cover margin calls on stocks. Furthermore, he believes investors will soon rush back into gold. For the reason that, gold is performing as it should – holding its value – during the current market turmoil.

Consequently, he explains,

“Interest for gold was strong before the dump in stocks. It’s basically investors who bought a lot of stock on margins, rather than selling stocks at depressed prices, people have been selling gold. When everything goes down, gold doesn’t’ necessarily go up.”

Paper Gold is Real Story

Gold was up a few dollars to $1,326 in early trading Tuesday, while silver was flat at $16.59 an ounce.

Milling-Stanley argues there is definite interest in the yellow metal coming from the U.S. and Canada. However, it is not physical. Paper gold has been the method of choice. Gold-backed exchange-traded funds added more tonnes than those of Asia and Europe combined during January. In fact, accounting for more than half of global net inflows, according to the World Gold Council.

North American Funds Buy Paper Gold

According to the World Gold Council,

“North American funds added 21.5t (US$940mn, 1.8% AUM) to their holdings during January. European funds, added 7.6t (US$35mn, 18p AUM), while Asian funds had net outflows of 1.4t (US$33mn, 1% AUM) during the month.”

This is a huge trend reversal when looking at the past few years. For some context, inflows into gold-backed ETFs equated to North Americans buying 63 tons of gold in 2017. They have already bought 21 tons in the first month of 2018.

Furthermore, WGC noted,

“US-listed ETFs accounted for 73% of global net inflows in January, reversing the 2017 trend in which European funds dominated net inflows.”

Certainly, North Americans are worried about something. Perhaps inflation, perhaps another steep correction and are putting their money into gold-backed ETFs. The trend of inflows into paper gold is something we will be following closely.