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Globally, gold-backed ETFs (gold ETFs) added 170 tonnes(t) – net inflows of US$9.3 billion (+5.1%) – in April, boosting holdings to a new all-time high of 3,355 t.

Assets under management (AUM) also reached a new record high of US$184 billion as gold in US dollars moved higher by 5.8%.

Inflows have been strong and consistent in recent months, but not unprecedented. Rolling twelve-month inflows of 879 t just surpassed those of 2009 and 2016, while rolling six-month inflows have barely experienced two-thirds of the 457t of inflows in the comparable time periods of 2009 and 2016.

Regional overview

Uncertainty surrounding the economic and social impact of COVID-19, along with significant central bank intervention, continued to drive inflows into gold.

Gold ETFs listed in all regions experienced inflows during the month, with inflows being particularly strong in North America, where flows have often been more correlated with gold’s price behaviour.

North American funds added 144 t (US$7.8 billion, 8.3% AUM), while European funds added 20 t (US$1.1 billion, 1.4%).

Asian funds – primarily in China – also finished the month with relatively strong inflows, adding 2.9 t (US$206 million, 3.9%), and funds in other regions grew 5.8%, adding 3.3 t and US$172 million.

Price performance

Gold in US dollars finished the month above US$1,700/oz – a monthly closing level not seen since 2012.

While gold is still 10% below all-time highs in US dollars, it continued to make all-time highs in every other major currency, namely: Australian and Canadian dollars, euro, pounds, yen and yuan, and briefly made a new high in Swiss francs during the month.

Gold global trading volumes, like those from many other major asset classes, fell sharply in April to US$140 billion a day, down from US$236 billion a day in March, but this is roughly in line with the 2019 daily average of US$145 billion.

COMEX net longs, as noted in the Commitment of Traders (COT) report, increased slightly in April, after falling sharply in March from the all-time high of 1,209 t (US$63 billion) achieved during February.

While gold volatility decreased from the extreme levels in March, it remained elevated and the implied volatility – or how much investors expected gold would move over the coming months – remained high as well.

At the time of publication, gold has outperformed most major asset classes this year, up by more than 11% in US dollar terms. And while bond and stock prices also rallied in April, supported by a very accommodative global monetary policy stance, investors are likely to face more volatility, especially since indices like the S&P 500 experienced their strongest monthly performance since 1987.

The recent market volatility and price behaviour of broad-based global assets provided an opportunity to highlight gold’s effectiveness as a hedge.

Gold prices swing as markets sell off, that sharp stock market sell-offs often require investors to meet capital requirements, and they can do so by selling a liquid asset like gold.

The World Gold Council’s recent analysis suggests that many hedges are not initially effective in tail events. It found that volatility-related hedges are by far the most effective initially but can be costly and erode overall portfolio performance over the long run.

Stacked against all the hedges we analysed – when comparing metrics like returns, volatility, risk-adjusted returns, and portfolio drawdown protection – gold stood out favourably.

Looking forward

As noted in The Gold Council’s March Gold ETF flows report, the price strength of gold has, so far, mirrored that of the Global Financial Crisis.

At that time it rallied back following the initial Quantitative Easing (QE) program in the US, which, along with similar monetary policy interventions worldwide, propelled gold over 130% higher at its peak in September 2011.

A vast majority of central banks, including the US Federal Reserve, continue to note their willingness to utilise well-established – and new – ‘tools’ to support the economy.

While this comes at a time when COVID-19 cases are diminishing and related actions – such as fast-tracked treatments and antibody tests – may help to create a path towards ‘normalisation’, the long-term effects of the pandemic on the economy and any future societal shifts are yet to be determined.

Just last week, the US published annually adjusted GDP losses of 4.8% in the first three months of 2020, the biggest quarterly decline since the fourth quarter of 2008.

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Europe, as a whole, was worse – the region shrank 14.4% on an annualised basis during the first quarter, the lowest quarterly number ever. It is this uncertainty, along with the unknown ability of central banks to support the markets, that could continue to drive investment demand for gold.

Although gold demand in jewellery and technology has been negatively impacted by the economic deceleration, as we noted in the council’s Gold Demand Trends Q1 2020 report, history suggests that the likely strength of investment demand may offset this weakness.

In conclusion, the council expects central banks to remain net buyers of gold in 2020, albeit at a lower level.