Gold exchange traded products (ETPs) have enjoyed increased inflows over recently weeks, as tensions between the US and North Korea push investors into safer assets.
Concerns over US/North Korea relations have intensified, with North Korea threatening further military tests near the US seas. Although the communist nation has been demonstrating its military force since at least the 1980s, its has stepped up the efforts since last year, with supreme leader Kim Jong-un claiming he can launch a missile capable of striking the US.
Recently, verbal provocations turned into military action, with a North Korean missile flying over Japan, while the US responded by performing live-fire bombing exercises over South Korea. However, Russia and China are seeking diplomatic talks.
As a result of this political unrest, the price of gold has risen above the $1,300/oz mark, trading at $1,349/oz by Thursday 7 September.
Gold ETFs monitored by TrackInsight have recorded increased inflows over recent weeks, with €586m going into the category on 1 September and another €293m of inflows on 5 September. Total inflows over the past month have amounted to €2.1bn.
ETF Securities reports its gold ETPs have seen strong inflows, with $122.5m going into these products during the week to 1 September, as investors sought safe havens.
However, WisdomTree has reported a lack of interest from retail investors so far, with the main buyers of the asset being hedge funds. As a result, it believes the price of gold could easily hit $1,400 if retail investors begin moving into the asset class to hedge against political uncertainty.
Hedge funds have already poured a record $19bn into gold futures over the past month, amounting to 474 tonnes, the firm reports. However, gold-backed ETFs have seen outflows of some 35 tonnes over the five weeks to 7 September, suggesting retail investors are behind the curve.
Nizam Hamid, ETF strategist at WisdomTree, said the surge upwards could see gold climb all the way to $1,400 in the near term: “Given where valuations are for other asset classes, there is real potential for gold to continue to rally, especially if mainstream investors get in on the trade.”