Industry Updates

Investors turn to gold ETCs following Russia invasion of Ukraine

Gold broke through $1,900 last week hitting a 20-month high

Theo Andrew

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Investors piled nearly $1bn into gold exchange-traded commodities (ETCs) last week following Russia’s invasion of Ukraine.

Gold jumped to its highest price in more than a year last Thursday, trading at $1,968 per ounce, before falling back to below $1,900 as investors assessed the impact of the conflict.

Three ETCs saw triple-digit inflows, with the $14bn iShares Physical Gold ETC (SGLN) recording the largest with $270m flows in the week to 1 March.

Elsewhere, investors piled $217m into the $14.7bn Invesco Physical Gold ETC (SDLD) with a further $92m flowing into its hedged counterpart. The comparatively tiny $449m Royal Mint Physical Gold Securities ETC (RMAU) recorded an impressive $151m of inflows over the same week.

Furthermore, the Xtrackers Physical Gold ETC (XGLD) and the Amundi Physical Gold ETC (GLDA) saw inflows of $223m and $118m, respectively. 

As the Russian invasion intensifies the demand for gold remains high, rising 1.3% on Thursday to $1,933 an ounce.

Vincent Mortier, group CIO at Amundi, said a flight to safe-haven assets, in particular gold, has been on the rise but urged investors to stay cautious.

“Overall, we believe it is time to keep hedges in place and stay cautious, but not overreact to excesses that we will likely see in the coming days. Some duration, gold and safe-haven currencies can provide a cushion to risk assets,” he said.

The situation in Ukraine continues to destabilise financial markets with the severity of the sanctions placed on Russia increasing and the uncertainty on equity and bond markets to remain.

There are also concerns that inflation could also rise following the invasion as energy prices increase on top of already high prices preceding the war. Russia and Ukraine combined to make-up almost 30% of global wheat exports which could prolong inflation further.

Furthermore, Russia was the second largest supplier of gold in 2021 and should the stop exporting the precious metal, gold prices could be pushed up further.

Ben Yearsley, director of Fairview Investing, said: “The clear long-term impact, if a resolution is not swiftly found (a Russian withdrawal and climbdown), is on energy and commodity prices.

“The world depends on Russia for many commodities particularly energy but also fertiliser and wheat which could push up food prices and prolong inflationary pressures. Perversely this could force central banks to postpone rate rises in the face of surging inflation.”

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