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Palladium: 1519.00 USD
Rhodium: 3300.00 USD

Gold Backed ETF's Are Booming

Every now and then we get asked about the rise in gold-backed ETFs.  What are gold-backed ETFs?  Gold-backed ETFs are exchange-traded funds that have as the asset behind the fund gold.  The funds are referred to as “exchange-traded” because one can move in and out of the gold-backed ETSs at a moment’s notice. 

The World Gold Council recently released their estimate of flow of funds into gold-backed ETFs going back to 2004.  The look follows.

As shown, gold-backed ETFs were non-existent in 2004.  The funds then began taking hold, similar to equity ETFs and a host of other ETF asset classes. 

The gold-backed ETF universe initially expanded slowly, taking four years to go from virtually nothing to around $20 billion in holdings in 2008.

From 2008 to 2013, demand for gold-backed ETFs exploded, rising from $20 billion to a peak of about $150 billion in 2013. 

That rise corresponded to not only a rise in actual demand for the product, but also from the rise in the price of gold.  From 2008 to 2013, the price of gold rose from around $600 per troy ounce to around $1,700 per ounce. 

It was a great time to be a holder of the world’s most well-known precious metal.

Every now and then we get asked about the rise in gold-backed ETFs.  What are gold-backed ETFs?  Gold-backed ETFs are exchange-traded funds that have as the asset behind the fund gold.  The funds are referred to as “exchange-traded” because one can move in and out of the gold-backed ETSs at a moment’s notice. 

The World Gold Council recently released their estimate of flow of funds into gold-backed ETFs going back to 2004.  The look follows.

As shown, gold-backed ETFs were non-existent in 2004.  The funds then began taking hold, similar to equity ETFs and a host of other ETF asset classes. 

The gold-backed ETF universe initially expanded slowly, taking four years to go from virtually nothing to around $20 billion in holdings in 2008.

From 2008 to 2013, demand for gold-backed ETFs exploded, rising from $20 billion to a peak of about $150 billion in 2013. 

That rise corresponded to not only a rise in actual demand for the product, but also from the rise in the price of gold.  From 2008 to 2013, the price of gold rose from around $600 per troy ounce to around $1,700 per ounce. 

It was a great time to be a holder of the world’s most well-known precious metal.

Of course, the heyday ended.  Following the 2013 peak, gold-backed ETFs gave up market share, with the holdings of gold-backed ETFs dropping to a low of a little less than $60 billion in asset holdings at the end of 2015. 

Since bottoming, demand for gold has come back up.  Gold-backed ETFs are up to above $100 billion in asset holdings at the end of 2018, with an end to the demand for gold-backed ETFs nowhere in sight. 

Where Has the Demand Come From?

With gold demand booming, from what areas of the globe has demand come from?  The largest source of demand, in purple, is North America.  As of the end of 2018, individuals in North America account for about $60 billion of overall global demand for gold-backed ETFs. 

Which area comes in second?  In second place is Europe, in green.  Demand from individuals in Europe accounts for most of the remaining $40 billion in global demand. 

The remaining areas – Asia and other – account for less than a few billion in overall gold-backed ETF demand. 

Conclusion

Overall, demand for gold is expanding across the globe, including demand from gold-backed ETFs.  Judging by the early performance of gold through 2019, the year ahead also looks to be positive for holders of gold.