After rapid interest rate hikes and a strong US dollar took gold exchange-traded commodities (ETCs) to their longest outflow streak in almost a decade, the collapse of three banks and UBS’s ‘shotgun wedding’ acquisition of Credit Suisse saw investors flock back to the oldest safe haven asset, with Europe’s largest gold product, the $15.1bn Invesco Physical Gold ETC (SGLD), a key beneficiary.
SGLD has been among the products that have felt the impact of hawkish monetary policy most keenly, topping the outflow charts in Europe this year with a $1.2bn outflows, as at 17 March, according to data from ETFLogic.
This came as part of a broader shift away from the precious metal, with the World Gold Council noting gold ETCs booked their tenth consecutive month of outflows in February, resulting in their longest run of outflows since January 2014 and the lowest ETC gold holdings since April 2020.
However, gold’s prospects reversed in March as the collapse of Silvergate Capital, Signature Bank and Silicon Valley Bank (SVB) in the US was quickly followed by Credit Suisse falling to 98% below its all-time high share price booked in 2007 before the acquisition deal with UBS.
The banking sector’s most unsettling week since the crash of Lehman Brothers in September 2008 posed serious question marks to the freshly hawkish tone Federal Reserve chair Jerome Powell struck at the start of March, with the CME Group’s FedWatch going from pricing in a 60% probability of another 50-basis point (bps) hike to a 45% chance of no hike at all within a week.
With a more modest 25bps hike having been anticipated at the Federal Open Market Committee (FOMC) March meeting, two-year US Treasury yields plummeted 125bps in their largest one-day fall since 2008 and largest three-day slide since 1987.
This turnaround in US Treasuries and corresponding fall in the US dollar took the sheen off yielding assets for the first time in a year, placing the spotlight back on other tried and tested safe havens.
On 20 March, the day after UBS agreed to acquire Credit Suisse for one hundredth of its all-time high market cap – with a Material Adverse Change clause and pricing the company’s convertible bonds to zero – gold broke $2,000 an ounce for only the third time ever, with Russia’s invasion of Ukraine and COVID-19 volatility being the other two occasions.
On these developments, SGLD returned 5.5% and saw $228m inflows in the week to 17 March, the highest of any gold ETC in Europe.
SGLD has also collected the most new assets of any Europe-listed ETC over the past three years with $3.7bn inflows, after cutting its fee from 0.15% to 0.12% in November 2021. Invesco’s product also boasts the strongest long-term performance of any gold ETC at that fee level, returning 47.6% over the past five years, as at 17 March.
This article first appeared in ETF Insider, ETF Stream's monthly ETF magazine for professional investors in Europe. To access the full issue, click here.