This year gold prices have rallied as a result of disrupted supply chains and closed down economies due to the global coronavirus pandemic and increasing possibility of a new trade way between the US and China. Now, gold ETFs are gaining momentum as a hedge against the potentially overbought stock market, some traders say.
Since late March, total ETF holdings have grown 14%, while long positions — bets on higher prices — on the Comex exchange in New York fell 7%, according to data from the World Gold Council and CME Group, which operates Comex.
Futures and gold ETFs allow investors to gain exposure to gold prices in a more controlled way. Gold futures contracts give buyers the right to receive metal at a future date. Gold ETFs store gold on investors’ behalf.
As investor interest in gold and gold futures increases, gold stocks of junior gold miners are also rallying. Gold stocks of all gold miners in prolific gold regions like the Abitibi Greenstone Belt are showing consistent growth. Abitibi is one of the most prospective geological terranes in the world for gold. Over the past century, more than 170 million ounces of gold have been produced from the Abitibi Greenstone Belt.
Canadian gold miners operating in the Abitibi include Eldorado Gold (NYSE:EGO) (TSX:ELD), Kirkland Lake Gold Ltd. (NYSE:KL) (TSX:KL), Newmont Mining Corp. (NYSE:NEM) (TSX:NGT), IAMGOLD Corporation (NYSE:IAG) (TSX:IMG), Osisko Mining Corp, Wallbridge Mining Company Ltd., and Genesis Metals Corp. (TSX-V:GIS) (OTCQB:GGISF).
The current strong interest in the gold sector is driving the value of the gold stocks of gold miners. It is also increasing interest in gold investments in Canadian gold ETFs, which pull in $382-million in April. This represents the biggest monthly gain in four years, according to the National Bank's monthly ETF-flows report.
Currently, Canada's gold ETF market is worth almost $3 billion, which is double from a year ago. At the same time, gold ETFs worldwide has attracted $14.5 billion in under five months, topping the $11.7 billion in investments into the funds in 2009.
As such, Canada’s sizeable amount of gold reserves have caught the attention of international investors. Some of the smaller gold producers in Canada are being bought up by Chinese miners looking to tap into the region. Zijin Mining Group Co. Ltd, has recently purchased Guyana Goldfields (TSX: GUY) for a deal valuation of approximately $323 million, despite facing competition from other bidders.
Facing continued uncertainty in global markets, especially with the potential threat of a second wave of COVID-19 ahead, analysts expect to see more international companies take interest in Canada’s gold production.