Gold and silver are taking momentum

Inflow into gold ETFs and ETCs

On May 8, 2020, the gold ETFs and ETCs held 3,407.4 tons of the yellow metal worldwide. That was a record. There is likely to be a structural effect behind the growing demand for gold ETFs and ETCs: the acquisition of gold via exchange-traded index funds is becoming increasingly fashionable. Above all, it is the only viable way for many institutional investors to participate in the gold price. In addition, the bottlenecks in the physical gold market that result from the politically dictated “lockdown” have markedly boosted demand for ETF and ETC gold. However, the most important structural effect is an increasing gold demand.

 

More and more investors are alarmed

The consequences of the bailout policies that governments and their central banks have introduced in the face of the lockdown crisis seem to be alarming more and more investors: They fear that the rapidly increasing money supply will push up goods prices across the board and reduce the purchasing power of money. For example, the US money supply M1 (cash and sight deposits at banks) rose by 31.4 percent compared to the previous year in mid-May 2020, while the money supply M2 (M1 plus longer-term bank deposits) rose by 22.3 percent compared to the previous year (Fig. 2) . Similar dramatic monetary expansions are likely to show up in the euro area very soon.