Under the Spotlight AUS: Global X Physical Gold (GOLD)

Donald Trump has put the bull into bullion. The volatility triggered by his trade war and his lashing of the Federal Reserve has investors scrambling for safety. This has pushed the price of gold above US$3,400 an ounce. 

Shining brightly amid these safe haven flows is Global X Physical Gold ($GOLD), the largest and most liquid gold-backed, exchange-traded product (ETP) on the ASX – and a popular choice on Stake. The ETP is up 40% over the past year, as U.S. tech stocks have stumbled and typical safety plays like bonds have not lived up to their defensive reputation. 

$GOLD has tracked moves in the Australian dollar price of gold since its inception in 2003. The AUD gold price is around $5,200 an ounce, up from $4,200 at the start of the year. This has been helped by the fall in the Aussie dollar against the greenback. 

The ETP is backed by allocated gold bullion held by JPMorgan Chase Bank in London. Each physical bar is segregated and allocated, which means there is no credit risk. The annual management fee is 0.40%. 

Golden days

Investors across the world are jittery and concerned the global economy is headed for trouble, given the tit-for-tat tariffs between the U.S. and China. That’s music to the ears of gold bugs. The most recent Bank of America fund manager survey showed a net 82% of respondents expect global economic growth to weaken – it’s a 30-year high, and the most pessimistic reading in the survey’s history. Meanwhile, 42% of respondents believe a recession is likely.

So how are institutional investors positioned for this environment? The same BofA survey showed the most crowded long trade was, you guessed it, gold. The precious metal’s newfound popularity brought an end to a two-year run for the Magnificent 7 as the most popular trade for the world’s largest fund managers. Of those surveyed, 42% said gold will be the best performing asset in 2025. 

The bullish momentum has some of the world’s leading investment banks penciling in further gains. Swiss bank UBS sees the precious metal trading around US$3,500 an ounce by the end of the year on escalating geopolitical tensions, fears of inflation sparked by tariffs, and a shifting interest rate outlook due to the prospect of slower global growth. Goldman Sachs, true to its name, is even more bullish, forecasting a rally to US$3,700 an ounce by the end of 2025, followed by a push to US$4,000 an ounce by mid-2026.  

High vault-age

While retail investors and speculators have recently jumped on the gold rally, central banks have been big buyers for years. Their demand accounts for 20% of all gold demand. According to the World Gold Council, central banks added 1,045 tonnes to their vaults in 2024 – the third consecutive year surpassing 1,000 tonnes. This brought their buying streak to 15 years straight. 

Though it’s unlikely to crack four digits a fourth time, gold demand from central banks should remain positive this year. The banks reported 24 tonnes of net purchases in February. It was the 11th consecutive month of net buying for the National Bank of Poland, and the 4th for the People’s Bank of China – to mention two notable buyers.

Central banks have indicated a desire to keep building their gold reserves. The World Gold Council’s 2024 Central Bank Gold Reserves Survey showed two thirds of respondents believed gold reserves would be ‘moderately higher’ in five years – up from 46% in the 2022 survey. The top 3 reasons for an increased gold exposure were its long-term status as a store of value, its performance during times of crisis and its role as a portfolio diversifier. 

Great haul of China

In China, it’s not just the central bank that’s taken a liking to gold. Chinese retail investors continue to be drawn to the precious metal amid a property slump and worries about the impact of Trump’s trade war on the world’s second largest economy. 

Inflows into Chinese gold ETFs totalled CN¥5.6bn (US$772m) in March. The combination of inflows and the rising gold price pushed the total assets under management to CN¥101b (US$14b). The gold held in these products rose 7.7 tonnes to a record 138 tonnes. The price of gold denominated in China yuan jumped 19% in Q1, the strongest Q1 on record since the formation of the Shanghai Gold Exchange in 2002.

China’s insurance companies could be a new source of gold demand. Industry regulators recently allowed insurers to invest up to 1% of their portfolios in bullion. This could provide CN¥200b (US$27b) of additional gold demand. 

Mellow yellow

Gold has been living up to its 5,000-year history as a trusted store of value. Having exposure to physical gold may not produce any cash flows, but it provides diversification at a time when stocks and even bonds are volatile. 

The precious metal has long been viewed as an insurance policy against bad policy. There seems to be no shortage of that at the moment. This should keep many investors holding onto that insurance policy until common sense prevails and global markets recover their footing. 

This is not financial advice nor a recommendation to invest in the securities listed. The information presented is intended to be of a factual nature only. Past performance is not a reliable indicator of future performance. As always, do your own research and consider seeking financial, legal and taxation advice before investing.