ETF vaults hold the equivalent of roughly two-thirds of the fresh supply mined in 2017, for example. And those tracked by Bloomberg contain more than 2,100 tons, worth $80 billion.
As a rule of thumb across markets, flows follow performance. That’s particularly true for precious metals, where passive allocations and bullion prices broadly move in the same direction. In every single tracked year where holdings went up, gold increased, and vice versa. The takeaway? Dismiss the underbelly of ETFs at your peril.
Myth 5: Central banks sell gold to avert financing crunches
Finally, there’s the vexed question of whether gold sales can come to the rescue for countries with external liquidity pressures.
For years, various episodes of financial turmoil across emerging markets, and even southern Europe, have spurred speculation there could be a looming fire-sale of gold held by monetary authorities. It rarely works out that way.
Big disposals risk spooking markets, and the divestiture mechanics are far from straight forward. For instance, Turkey is the 19th largest sovereign owner of gold. Yet, it’s unlikely to sell metal to ease balance-of-payments woes of late, in part because a chunk of holdings aren’t directly available for sale.
This article provided by Bloomberg News.