Investors reaches for gold

19 May 2016

Professional investors around the world are actively buying gold - total assets of gold exchange-traded funds have risen to maximum since December 2013. From the beginning of the year, these funds have increased investments in metal by more than 360 tons. Institutional investors are increasing their investments in metal on a background of soft monetary policy of the European Central Bank and the Bank of Japan as well as in anticipation of only one raising of the rate of the Federal Reserve System this year.

Recent data of Bloomberg agency show that the assets of exchange traded funds investing in gold, updated three-year maximum. On the results of Tuesday trading, they have increased by 4 tons exceeding 1825 tons. This is the highest level since December 9, 2013. Since early May, the funds’ assets have increased by 66 tons; in total, since the beginning of the year - by more than 363 tons. This compares, for example, with the volume of gold reserves of Portugal occupying the 15th place in the world by this indicator. The main inflow of customer funds, as usual, stands for the world's largest exchange-traded fund SPDR GoldTrust the assets of which have increased from the beginning of the year by 213 tons, to 856 tons - the highest level since November 21, 2013.

In recent weeks, investors buy the metal even in the absence of growth in prices for it. If at the beginning of the month the price for precious metal has risen above $ 1,300 per ounce for the first time since March 2015 - currently, they are traded by 3% lower than annual maximum. Yesterday, according to Bloomberg, its cost was $ 1266 per ounce which is 1% below the closure on Monday. According to the director of Simargl Capital, Dmitry Sadovoy, investors buy gold in any market conditions. "Gold is the best assets class in the world markets which added about 20% in dollar terms. Some investors in Russia consider the precious metal as an alternative to dollar deposits with their rates approaching to zero", — said the head of the analytical research department of the Managing Company "Uralsib", Aleksandr Golovtsov.

Strong investors' demand for gold is ensured by the preservation of the policy for financial priming of economy by central banks of developed countries. In March, the European Central Bank reset to zero the key rate, decreased the deposit rate from minus 0.3% to minus 0.4% as well as expanded the assets repurchase program of up to € 80 billion per month. In addition, despite the positive data on US unemployment and inflation growth, investors have tempered their expectations regarding the growth of rates of the Federal Reserve System (FRS). If at the beginning of the year the majority of market participants expected double increase in rates this year by the financial regulator, now they are waiting only for one revision. "If last year the determining factor for the gold market was the expectations of changes inFRS monetary policy, thуn, in the current year, the quotes are influenced by a number of factors including low or negative rates in Europe and Japan as well as ongoing concerns about yuan devaluation" - said the analysts of SberbankInvestmentResearch.

High interest in gold is preserved and from the side of central banks. According to WorldGoldCouncil (WGC), in the first quarter, central banks bought in total 109 tons of gold. At the same time, Russia and China remain the largest buyers of precious metal. According to WGC estimates, the Russian Central Bank bought 45.8 tons of the precious metal within the first three months thereby increasing gold reserves up to 1460.4 tons. People's Bank of China bought 35.1 tons bringing the reserves up to 1797.5 tons. "Negative interest rates and "quantitative easing" from the major central banks of the world have reduced the number of options that are suitable for investments which makes the gold attractive in terms of investments not only for private investors but also for central banks", - noted the analyst on the trade markets of "Otkrytie Broker" company, Oksana Lukicheva.