Economic uncertainty boosts gold ETP inflows

Economic uncertainty and sovereign risk in western markets has boosted flows into gold exchange-traded products, according to the World Gold Council (WGC).

WGC says concerns over Greece's public finances and debt contagion fears in Europe fuelled strong buying in gold ETPs, as well as gold coins and bars during May.

ETF Securities, for example, saw new flows of $105m into its gold ETCs in the week ending 21 May, bringing total inflows over the past six weeks to $1.2bn.

WGC CEO Aram Shishmanian says: "Currently, European gold investment demand is exceptionally strong, especially from German and Swiss investors."

He adds: "This is mainly attributable to concern over public debt levels in the eurozone and the potential inflationary impact of the European Central Bank's announcement of the $1trn rescue package to purchase eurozone government bonds to address the Greek debt crisis."

Gold ETF flows started to rise strongly in April and May. WGC says this stems from investors seeking less volatile investments, to protect their funds against economic uncertainty.

On 20 May, SPDR Gold Shares held a record 1,200 tonnes with a value of $46.88bn.

Total investment demand fell in the first quarter of 2010 compared with the same period in 2009, although WGC says this decrease was driven by the very strong level of demand in the first quarter of 2009 for ETFs in particular.

This created a bias for the total demand figures for the first quarter of 2010, when ETF demand paused.

WGC says the strong recovery in jewellery demand, driven by China and India in the first quarter this year, combined with recent high inflows into ETFs, supports an optimistic outlook for the rest of 2010.