What will it take for investors to leave the protection of safe haven ETFs?

George Geddes

a couple of credit cards

Despite the equity market recovery and economies around the world easing back to normality, investors remain hesitant to reallocate their assets away from safe havens such as gold.

June saw the seventh consecutive month of positive net flows into gold-backed ETPs with values on a continuous climb since November 2019, according to the World Gold Council (WGC).

Since the spread of coronavirus at the beginning of the year, investors – like they usually do during periods of uncertainty – sought haven in gold and gold-backed ETPs. With this, the price of gold reached a new high of $1,768 an ounce in June, its highest since September 2012.

However, the World Gold Council (WGC) said investors are still concerned coronavirus infection rates could rise again despite the unemployment rate falling in the US and lockdown restrictions ease across Europe.

The US, the largest investor-base for gold-backed ETFs, poured another $4.6bn into the asset class in June, taking assets under management to $103.8bn.

Germany, Switzerland and France-based investors also followed suit by adding $62.4m, $183.5m and $581m, respectively while UK-domiciled gold ETPs were the rare few that had negative net flows for the month, worth $118.2m.

One of the key drivers for these inflows is the speculation of the potential impact a second wave of increased coronavirus infections would have on an already fragile global economy.

The WGC highlighted the ongoing asset purchases by central banks to mitigate the impact of the pandemic further reduced the opportunity cost of holding non-yielding assets such as gold.

These drivers do not seem to be going anywhere any time soon so could these flows and price rallies continue in the coming months?

At some point, investors, notably large institutions, will reach their maximum safe haven allocation. However, Fiona Boal, head of commodities and real assets at S&P Dow Jones Indices told ETF Stream earlier this year these institutional investors could expand their allocation brackets given the current state of the market.

This would suggest there is no optimal sum of assets that investors could allocate to gold-backed ETFs, especially if coronavirus is still a factor. Therefore, the only definite factor which would suggest investors would gain confidence is if there was no opportunity of another wave of coronavirus infections.

The WGC forecasts gold investments to continue being an attractive asset as the infection rates, particularly in the US, suggest that we are still some way away from economies completely reopening with confidence.

Dr Tedros Adhanom Ghebreyesus, head of the World Health Organisation (WHO), said: “Although many countries have made some progress, globally the pandemic is actually speeding up.”

This means it could be some time yet before investors are brave enough to begin the big rotation away from the precious metal.

Sign up to ETF Stream’s weekly email here

Featured in this article

Logo for World Gold Council


No ETFs to show.