The World Gold Council (WGC) published its April report evaluating the developments regarding gold. Accordingly, the adoption of expansionary monetary policy by central banks on a global basis, together with the uncertainties in financial markets due to the Covid-19 epidemic, supported gold prices upwards.
While the turbulent period in global markets due to Covid-19 directed investors to gold, which is a safe haven, gold-based investment funds added 170 tons of gold, worth 9.3 billion dollars, to their portfolios in April, and the amount of gold they held reached a record level of 3 thousand 355 tons. Thus, the value of gold under management of gold-based investment funds reached a historically high level of 184 billion dollars.
North America leads in gold growth in mutual funds
Last month, North America stood out in terms of money flows into gold-based investment funds. Investment funds in the region added 144.2 tons of gold worth $7.8 billion to their portfolios during this period, and the value of gold in investment funds reached $93.8 billion.
During the said period, it added 19.7 tons of gold worth $1.1 billion to investment funds in Europe, thus increasing the value of gold in European investment funds to $81.7 billion.
While the strong money flow in gold-based investment funds in Asia, especially with the influence of China, attracted attention, 2.9 tons of gold worth 206 million dollars was added to these funds in April, and the value of gold under the management of investment funds increased to 5.2 billion dollars.
In other regions, 3.3 tons of gold worth 172 million dollars were added to these funds, while the total value of gold-based investment funds increased to 3 billion dollars.
Gold stands out as the best hedge tool
While the ounce price of gold completed April above $1,700, the highest level since 2012, gold prices reached record levels in almost all major currencies.
The daily transaction volume, which increased to 236 billion dollars in March due to investors having to sell gold to cover collateral, decreased to the average levels in 2019 and reached 140 billion in April.
Although there was a significant decrease in the volatility observed in gold prices in March, it continued to remain relatively high compared to historical averages in April.
While there were significant rallies in bond and equity markets in April, gold outperformed many assets with an 11 percent increase. Although the S&P 500 index traded in the USA has exhibited its best monthly performance since 1987, investors still face the risk of volatility at high levels.
While the fluctuation in financial markets due to Covid-19 revealed the risk-reducing effect of gold, gold served as an important hedge in many portfolios.
However, when the assets used as hedges are examined, although volatility-based hedging tools stand out as the best performing tools, the fact that these tools are quite costly negatively affects portfolio performance in the long term.
When hedging instruments are analyzed on the basis of return, volatility, risk-based return and downside risks, gold stands out as the most suitable asset for hedging.
- Central banks will also be net buyers of gold in 2020
In parallel with the situation in the Global Financial Crisis, gold prices continued to strengthen during the epidemic period. Monetary expansion interventions globally as well as in the US were similar in these two periods, and these developments took gold 130 percent ahead of its peak in September 2011.
On the other hand, most central banks, including the US Federal Reserve, express their willingness to use new tools to support the economy.
While the decrease in the number of new cases and developments in treatment methods in the Covid-19 epidemic have brought about a “normalization” process, the long-term effects of the epidemic on the economy and social life have not yet been fully determined.
While the macroeconomic data announced in the USA and Europe are starting to reflect the effects of the epidemic, it is expected that the demand for investment in gold will increase and central banks will continue to be net gold buyers in 2020, as it is not known how much longer central banks can support the markets.
