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Physical Gold Monthly Report | August

  • Low interest rates, expectations of inflation, hedging against other stocks, and price momentum have shaped gold’s July performance 
  • Gold reached a record intraday high of $1,983.36 per troy ounce on 31st July 2020 [1]  
  • Adjusted for inflation, recent gold prices are still well below the levels reached in 1980 (c.$2,800) and 2011 (c.$2,100) [2]  
  • Holdings in gold-backed exchange-traded products reached new highs despite an overall fall in global gold demand

Performance Review

Monthly Performance of Fund/Sector 

  • The London Bullion Market Association (LBMA) PM gold price ranged between $1,771.05 per troy ounce on 1st July and $1,964.90 on 31st July, increasing 11.11%
  • At the end of July, The Royal Mint Physical Gold ETC Securities stands at just under $350m of assets under management. AUM in USD terms grew 24% in July.

Gold performance 

July* YTD**  12 Month*** 
11.11% 24.13%  37.64% 

Past performance is no guarantee of future performance.

Figures based off LBMA PM Gold Price Source: Bloomberg, HANetf

*July figures based on 01.07.20 – 31.07.20 **YTD figures based on 01.01.20 - 31.07.20 ***12 Month figures based on 30.06.19 -31.07.20

What Has Driven This Performance?

With low interest rates and 10-year UK government bond yields hitting an all-time low at the end of July, the perceived ‘opportunity cost’ of holding an asset like gold has been reduced.

As both asset classes have a reputation for ‘wealth protection’ and therefore often perform a similar role in investment portfolios, investors have been increasing their allocations to gold, sometimes at the expense of bonds and gilts.

The attempts of multiple governments and central banks to lessen the economic impact of coronavirus through large fiscal stimulus packages and quantitative easing have led some investors to increase their exposure to gold. Historically, gold has performed well during inflationary periods and its annual price growth since the end of the Bretton Woods system in 1971 has actually outpaced the UK consumer price index. This strategy of using gold to hedge against inflation is likely to have contributed to the large inflows into gold-backed exchange-traded products that we have seen throughout 2020, and continued in July.

However, it is not just inflation that investors have been seeking to hedge against. Some fear that fiscal stimulus packages are the driving force behind recent stock market rallies and have sought to take advantage of gold’s reputation as a ‘safe-haven asset’ that historically has a negative correlation with other stocks. This form of risk-hedging has also likely contributed to gold’s impressive gains.

The pace and extent of gold’s gains has also attracted some investors keen to capitalise on the price rally.

Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product.

Source: LBMA / HANetf, data as of 31/07/20

Industry News

Bar and Coin Investment

World Gold Council data showing an 11% drop in demand for gold bars and coins in USD terms in the second quarter of 2020 masks stark regional differences[3]. Global supply chains were disrupted and many retailers experienced stock shortages. Bar and coin demand in Asia dropped as access to retail stores and high prices made accessing gold in this traditional form difficult. Others were deterred by current gold prices and falling income, or took advantage of high prices to raise cash. Western markets such as the US, UK and Germany appear to still be experiencing high demand. US bar and coin demand in USD terms for the period April-July 2020 was up over 400% year on year[4]. The Royal Mint’s own gold bullion bar and coin business saw an uplift in sales of over 160% when compared to July 2019.  

Gold Jewellery Demand

Gold jewellery usually accounts for around half of all global gold demand. Recently published data by the World Gold Council shows that while investment demand in the quarter to June 2020 was up 158% in USD terms, jewellery demand was down significantly, with jewellery demand accounting for just 25% of all gold demand in the quarter[5]. In the major markets of China and India, jewellery retailers are hoping that delayed weddings and a good monsoon season in India will buoy demand later in the year.  

Despite disruption in the physical markets, the gold price continued to rise in this period as investors continued to be attracted by gold’s fundamentals in an uncertain economic environment.

Outlook

  While price growth remained on an upward trajectory and amounted to around $200 per troy ounce in July, gold failed to break the $2,000 barrier. It remains to be seen whether this will be reached over the next few months, what effect breaching this psychological barrier could have, and whether gold can climb further, but analysts are watching closely.   Events in the US may have a bearing on the gold price in the coming weeks. The Federal Reserve has stated that it is ready to do more to support the US economy, but Congress appears divided on fiscal policy, and the number of new coronavirus infections remains high.

Product Details

The Royal Mint Physical Gold ETC Securities (RMAU) is designed to offer investors an effective way to access the gold market as it tracks the spot price of physical gold.  

It is the first financial product to be sponsored by The Royal Mint and the first gold ETC custodied with a European Sovereign Mint.  

The ETC is backed by London Bullion Market Association (LBMA) Good Delivery bars held on a segregated basis.  The gold will be stored and guarded in The Royal Mint's highly secure vault in Llantrisant, Cardiff.  

The value of your investment may go down as well as up and past performance is no indication of future performance. Your capital is at risk.

 

Exchange Bloomberg CODE RIC ISIN  SEDOL  Currency TER
London Stock Exchange RMAU LN  RMAU.L  XS2115336336  BKT7175  USD  0.22%
London Stock Exchange RMAP LN  RMAP.L  XS2115336336 BKT7197 GBP  0.22%
Deutsche Boerse Xetra RM8U GY  RM8U DE  XS2115336336 BKT71G4 EUR  0.22%
Borsa Italiana RMAU IM RMAU.MI XS2115336336 BKT71B9 EUR 0.22%

 

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