Although market sentiment is changing a bit, investors are not willing to sell off gold. Many people understand the factors driving this price increase, and they will not change in the coming time.
Central banks will continue to buy gold and reduce their dependence on the US dollar, while global investors will continue to view gold as a safe haven asset in a world facing economic uncertainty and rising inflationary pressures.
Neils Christensen - an analyst at Kitco News commented: "This week, I want to focus on investors' demand for gold-based investments. As I mentioned last week, this market has not been very active yet, and now we are starting to see a strong flow of money."
"We expect ETFs to be the main driver of investment demand for the rest of the year," George Milling-Stanley said in an interview with Kitco News on Friday.
According to analysts, inflation is the main reason why investors are finally starting to turn to gold. In recent years, a risk-free trade has been buying money market funds for 3 months. Reduced inflation and strong economic growth have helped investors make real profits.
However, US President Donald Trump's trade war is starting to weigh, as consumers face higher costs. Real yields are starting to fall, reducing the opportunity cost of gold as a non-yielding asset.
The opportunity cost of gold has fallen as the escalating trade war has affected economic growth, and investors are looking for alternative assets to diversify their portfolios.
Although demand for gold ETFs has increased sharply since last month, there is still a lot of potential.
Data from SPDR Gold Shares - the world's largest gold ETF, shows that the fund's gold holdings have increased by more than 37 tons to 910 tons this year. However, in 2020 the last major gold rally, the GLD held 1,278 tonnes of gold.
Gold holdings have fallen 28% year-on-year, but gold prices have risen nearly $1,300 an ounce. Gold has gained nearly 62% in the past 12 months, although demand from ETFs remains weak. 2020 is not yet the peak of investment demand. The record holdings of gold by the GLD were set in December 2012 with 1,353 tons.
The biggest difference between the gold market in the previous two and current price increases is the demand from ETFs that have peaked when gold prices increased the most. In 2012, investors began selling off gold as the global economy began to recover after the 2008 financial crisis.
In 2020, central banks and governments pumped money into financial markets to support the global economy heavily affected by the COVID-19 pandemic. Gold has benefited from this liquidity, but most of its capital has been in stocks so far.
