European investors continued piling into gold exchange-traded commodities (ETC) in preparation for further economic headwinds, most notably an escalation in Russia’s war in Ukraine.
According to data from ETFLogic, the $16.4bn iShares Physical Gold ETC (IGLN) added a whopping $1.9bn in the week to 14 March while the $16.2bn Invesco Physical Gold ETC (SGLN) saw inflows of $911m.
Similarly, the $4.6bn Amundi Physical Gold ETC (GOLD) and $3.2bn Xtrackers Physical Gold ETC Securities (XGDU) saw $241m and $161m in new money, respectively, over the same period.
However, the price of gold bullion has fallen more than 7% over the past week in response to a slide in oil prices. Also, with the Federal Open Markets Committee (FOMC) meeting today, some anticipate a first rates hike by US policymakers which often impacts gold’s short-term outlook.
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Ole Hansen, head of commodity strategy at Saxo Bank, commented: “Gold retraced 50% of the February gain with the continued drop in crude oil and jitters and rising US Treasury yields ahead of tomorrow’s FOMC meeting forcing short-term momentum longs to exit their positions.
“Asset managers and long-term investors, however, continue to accumulate exposure with total holdings in bullion-backed ETFs rising to a one-year high despite the recent price correction.”
Despite hopes of Russia-Ukraine peace talks, President Vladimir Putin’s invasion is still ongoing and the cost of economic inputs – energy and materials – remain at elevated levels. China has also threatened to retaliate if it is affected by the fallout of sanctions on Russia’s economy.
Making matters worse, a new spike in COVID-19 in China has led to the reimplementation of lockdowns in some regions, prompting Chinese equities to continue their more than year-long plunge.
For instance, the largest China tech ETF, the $4.3bn KraneShares CSI China Internet ETF (KWEB), has wiped out all its gains since launch in 2013, according to Bloomberg.
Lockdowns also threaten to add to supply chain difficulties experienced last year, given new restrictions and the potential for reduced activity at ports exporting goods to the west.
“While the war premium will deflate and eventually disappear, the risk of stagflation will not, and that remains a key theme that will likely continue to attract demand,” Hansen continued on gold.