Investors Seek Safe Haven from Currency “Pain” in Gold
$GLD, $EUR, $JPY, $GBP
The other side of declines in the EUR, JPY and GBP in recent months has been a massive increase in gold buying as investors in Asia and Europe try to protect their wealth.
The hunger for bullion is so strong that purchases of ETFs (exchange-traded funds) backed by Gold last year eclipsed buying by the world’s central banks, the biggest holders of the metal, for the 1st time since Y 2010.
So far in Y 2017, investors poured $3.1-B into the ETFs backed by precious metals, after a record inflow of $23-B last year. That’s helped boost gold prices 6.8% since the end of December, following the biggest annual gainer in 5 years.
The EU and countries including Japan and the UK are using low interest rates to drive economic growth, including demand for their exports that become cheaper as their currencies weaken.
US President Donald Trump blames the depreciations for the US trade deficit, and inferred that we are a new currency cold war led by the world’s central banks.
When we have a volatility in certain financial markets, a stable, safe place to go traditionally is Gold, which is a Currency alternative.
Billionaire investor Stan Druckenmiller, who sold all his Gold in November, said he jumped back into the market in December and January. “I wanted to own some currency, and no country wants its currency to strengthen,” he said in a 7 February interview.
The Bank of Japan’s (BoJ) move in September to anchor the nation’s 10-year bond yields near Zero beautifully depreciated the JPY, the EUR tumbled after the ECB decided in December to increase the pool of bonds eligible for QE’ing (quantitative easing), including those with yields below its deposit rate of -0.4%
US President Donald Trump’s “America First” policy represents a fundamental change in the country’s USD strategy. The new government’s attempt to shrink the trade deficit is designed weaken the USD.
ETFs have become a steady source of Gold demand as central banks slow their purchases.
In China, the largest consumer of the precious Yellow metal, the central bank halted bullion purchases for a 3rd month running in January, while investors poured $132-M this year into Huaan Yifu Gold, the nation’s largest commodity ETF. That helped boost total holdings in the fund to $931-M, data compiled shows.
Last year, Gold-backed ETF demand was strongest in Europe, according to the World Gold Council (WGC).
The region is home to the GBP and EUR, 2 of the 3 worst performers among 16 major currencies tracked in the past year.
So far this year, 6 of the 10 precious-metals funds that attracted the most money were in the Euroarea, along with one in China, whose currency weakened in Y 2016 by the most in more than 20 years.
In contrast, the Currency-focused ETF that has had the biggest inflow this year, Dolar Trac, seeks to profit from declines in the Mexican Peso relative to USD. The 5th-best performer in currency fund flows is ProShares UltraShort Yen.
Even New York-listed SPDR Gold Shares, (NYSEArca:GLD) which at the end of last year posted its biggest Quarterly withdrawal since Y 2013, is catching up with its peers. The fund has attracted $789.50-M YTD, as USD weakened 1.7% Vs a basket of 10 peer currencies. Total assets, now at 27-M oz, surpassed Japan’s holdings of the precious Yellow metal last year for the 1st time since Y 2015.
Gold-price gains may ease as the Fed accelerates its monetary tightening, and 3 rate increases this year would not be unreasonable, Chicago Fed President Charles Evans said on 9 February. Higher interest rates often curb the appeal of precious metals because they do not offer yields or dividends.
The weaker EUR helped Xetra-Gold attract $1.6-B this year, the most among 310 precious-metals ETFs tracked. The $6.2-B fund is listed in Germany, which has been accused by President Trump of benefiting from a weaker currency.
The weaker GBP also helped send investors to the safety of London-listed gold-backed funds. ETF Securities Ltd.’s total assets soared last year by more than a third to 9.26-M oz, surpassing Spain’s gold holdings, buoyed by inflows into ETFS Physical Gold.
In Europe, people are concerned about currency depreciation and they are buying Gold ETFs and and physical Gold including Gold coins. And now notably Germans absent from the Gold market for so long have become hugely buyers of Gold.
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