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General Market Commentary
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General Precious Metals
Gold Price Update: Q2 2020 in Review
The gold price climbed 9.2 percent during the second quarter of 2020, driving its year-to-date increase to 14 percent. As other commodities struggled to regain value lost in the mid-March market meltdown, the yellow metal displayed resiliency.
Standing in stark contrast to Q1, the second quarter saw the safe haven asset surpass a seven year high.
After climbing back from a March low of US$1,498 per ounce, gold has steadily edged higher, ending the three month period approaching US$1,800 — that’s a price unseen since September 2011.
Q2 started with gold trading at US$1,621, driven higher by stimulus announcements, which pushed investors toward the safe haven asset class. The motivation to seek more secure ground was brought on by the rapid worldwide spread of COVID-19.
“The lockdowns accelerated what was already very dovish monetary policy,” explained Gerardo Del Real. “Billion-dollar bailouts became trillion-dollar bailouts and forced central banks to either let the business cycle play out or step in with trillions in liquidity.”
The editor of the Outsiders Club’s Junior Mining Monthly newsletter pointed out that the pandemic response has led to central banks doing “what they always do — and that (is) provide a clear path forward towards new all-time highs in US dollars.”
By the end of April, gold had added 3.9 percent to its value. The yellow metal ended the month at US$1,685, the highest month-over-month gain of the quarter.
Gold price update: All that glitters
As investors flocked to assets that retain value in uncertainty, concerns around a potential shortage of physical gold began to hit the market in earnest.
This was compounded with an insatiable demand for gold-backed exchange-traded funds (ETFs), with inflows ballooning month after month in 2020.
In fact, over the first six months of 2020, net inflows into gold ETFs topped US$40 billion, which was a new record. Large gains were also registered quarter-over-quarter, with Q1 accounting for 299.8 tonnes and Q2 surpassing that at 434.1 tonnes.
The mounting global interest in ETFs was the focus of an Investing News Network (INN) interview with the World Gold Council’s Adam Perlaky in mid-June.
“I would say first, with the economic and geopolitical uncertainty, lofty stock valuations and low-rate environment, there’s certainly been drivers for investment demand, and that clearly led some new investors into the space,” he said. “But I also think the growth in the number of funds globally has also given access to additional investors.”
To date, the gold ETF space has seen inflows of 734 tonnes for 2020, which already significantly exceeds the previous yearly all-time high of 646 tonnes in 2009.
For the namesake of Adrian Day Asset Management, the rise is less new attention and more a case of investors deciding to increase their positions in a variety of gold options.
“Another very important consideration is that most investors — retail and institutional — have under-owned gold for several years,” said Day. “So even a small increase in interest, say funds going from zero gold to 0.5 percent gold, has a significant impact on a small market. We are seeing this in physical demand, in bullion ETF inflows and in demand for gold shares.”