Gold ETC vs Gold Futures Gold Market Dislocation - Invesco ETFs
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Gold ETC vs Gold Futures Gold Market Dislocation For Professional Clients, Qualified Clients, and Qualified Investors only June 2020
The impact of COVID-19 on the gold market Overview The recent pandemic has caused a series of unprecedented events for the gold market, and the effects are still visible today: ▪ Logistical headaches leading to disruption of the Exchange for Physical (EFP) mechanics ▪ Record gold stockpiling in COMEX warehouses ▪ Gold futures and EFP volumes down ~80% ▪ Futures premium vs gold spot skyrocketed to $70 per contract, compared to average of $5 or less What does this mean for investors looking to gain exposure to gold? Let’s look at the impact on gold futures and ETCs 2 Gold ETC vs Futures - Gold Market Dislocation
Gold futures diverged significantly from spot prices Market dislocation due to supply and funding costs ▪ The main gold futures are New York based COMEX contracts, which are denominated in 100oz bars. Physical metal is typically traded in London and is denominated in 400oz bars. Gold can pass through refineries to transform 400oz bars into 100oz bars that can be used to satisfy physical delivery on expiring futures contracts ▪ The mechanics through which the two markets are connected is called Exchange for Physical (EFP) ▪ With refineries shutting down, and the remnants of a logistical halt due to the pandemic, fear of a gold shortage pushed futures up to $70/Oz premium ▪ This also corresponded with the tail of the rolling window from the April to the June GC contract Source: Bloomberg, as at 26 Mar 2020. XAU is $ Gold spot price, GCJ0 Comdty is the April COMEX Gold 100oz Future Contract. 3 Gold ETC vs Futures - Gold Market Dislocation
COMEX gold warehouse
Fear of shortage led to unprecedented gold stockpiling
Stockpiles reach record levels
▪ The record level prior to March (going back
30+yrs) was 11.5m oz, dwarfed by the current
>30m oz
▪ To put this into context, the 17m oz added since
March is more than the total increase in 2019
global ETP holdings, and almost equal to India’s
annual jewellery demand
▪ This is a localized phenomena, with gold
remaining in high demand in other parts of the
world
Source: Invesco, Bloomberg, as at 2 Jul 2020.
4 Gold ETC vs Futures - Gold Market Dislocation
Impact on gold futures
Gold futures roll
Gold futures – roll cost
6.0%
5.0% March:
High uncertainty
4.0% around roll spread
Pre-COVID 19:
3.0% Steady roll spread May:
Not back to pre-
2.0% COVID-19 yet
1.0%
0.0%
-1.0%
-2.0%
20 – 26 Nov 2019 20 – 24 Jan 2020 23 – 27 Mar 2020 18 – 22 May 2020
Roll Spread GC1 Premium/Discount GC2 Premium/Discount
Source: Bloomberg. Rolling window over London trading hours, from 8:00 till 16:30 GMT. For specific dates for future contracts rolling windows see slide 13. Premium/Discount has been
calculated as a % over the USD gold spot price (XAU). Roll spread is the difference GC2 - GC1.
5 Gold ETC vs Futures - Gold Market DislocationImpact on gold futures Liquidity profile Spreads in GCA (active month gold contract) …but order book depth is still only a fraction of have begun to come back to the $0.10 to $0.20 what it was prior to the EFP dislocation in range, consistent with February levels… March. Best on screen bid-offer daily spread for the active gold futures contract Daily average order book depth displayed within +/-6bps from on screen mid GC price for the active gold futures contract GC Source: Bloomberg, Jane Street, as at 30 May 2020. 6 Gold ETC vs Futures - Gold Market Dislocation
Gold ETC or futures?
Spreads for both widened, but futures have been much more volatile
Premium/discount to gold spot – Invesco Physical Gold ETC (SGLD) vs futures
5.0%
4.0%
▪ Premium/discount for gold ETC was also affected, but to a
significantly smaller extent
▪ The ETC tracks the London spot metal price and therefore
3.0%
any price discrepancy would represent an arbitrage
opportunity for market makers and other maker participants
2.0%
1.0%
0.0%
-1.0%
Nov Dec Jan Feb Mar Apr
SGLD - Spot Futures - Spot
Source: Invesco, Bloomberg. Spot refers to $ gold spot price (XAU), Futures refer to the COMEX active contract (GC Active): GCZ9 Comdty (roll date 20 Nov 2019), GCG0 Comdty (20 Jan
2020), GCJ0 Comdty (23 Mar 2020), GCM0 Comdty (18 May 2020). London trading hours only, from 8:00 to 16:30 GMT. ETF, futures and spot have been rebased to 0% as at 20 Nov
2019.
7 Gold ETC vs Futures - Gold Market DislocationDemand for gold during uncertain times
Investors are increasingly relying on ETCs to gain exposure to gold
Record flows in Gold ETC Gold ETCs market in
14,000 1,800 EMEA has now
1,750 reached $82bn
12,000
1,700
10,000
Investors poured
1,650
over $11bn in net
Gold Spot Price ($)
Inflows ($ millions)
1,600
8,000 new assets YTD in
1,550
6,000
EMEA domiciled
1,500
Gold ETCs
4,000 1,450
1,400
2,000
1,350
1,300
Cumulative Flows Gold Spot Price
Source: Bloomberg, as of 12 Jun 2020.
8 Gold ETC vs Futures - Gold Market DislocationDislocation has increased trading costs for gold ETCs
Invesco Physical Gold ETC demonstrated tightest spreads during
this period
Spreads among Gold ETCs during the recent market dislocation
3.50%
Despite the EFP dislocation and the impact on the Market Makers’
hedging ability, SGLD has consistently traded in line with or inside
3.00%
spot spread.
2.50% Our experienced Capital Markets team continues to work closely
with our partners to help minimise trading costs.
Bid/ask spreads
2.00%
1.50%
1.00%
0.50%
0.00%
Mar Apr May Jun
Range of spreads in largest competing ETCs Invesco Physical Gold ETC Gold Spot
Source: Bloomberg, Invesco, as at 20 Mar 2020 through 29 May 2020. Chart shows rolling 1h spreads in 30 minute intervals. During this period, Invesco Physical Gold ETC averaged
0.08% vs. range of 0.10% to 0.19% for largest 5 competing Gold ETCs in Europe.
9 Gold ETC vs Futures - Gold Market DislocationAppendix
Historical Performance & Future contracts rolling windows
May '19 - May '18 - May '17 - May '16 - May '15 - Dec '18 - Dec '16 -
May '20 May '19 May '18 May '17 May '16 Dec '19 Dec '19
Invesco Physical Gold ETC 33.14% -1.02% 2.79% 4.16% 1.44% 18.55% 30.32%
LBMA Gold Price PM USD 33.43% -0.75% 3.09% 4.46% 1.74% 18.07% 31.60%
Gold Futures Rolling Windows GC1 GC2
20-26 November 2019 GCZ9 Comdty GCG0 Comdty
20-24 January 2020 GCG0 Comdty GCJ0 Comdty
23-27 March 2020 GCJ0 Comdty GCM0 Comdty
18-22 May 2020 GCM0 Comdty GCQ0 Comdty
Source: Invesco, Bloomberg. Futures rolling windows for slide 7. London trading hours only, from 8:00 to 16:30 GMT.
Source: Invesco, 31 May 2020. Performance shows 12-month returns. Past performance is not a reliable indicator of future performance.
10 Gold ETC vs Futures - Gold Market DislocationInvestment risks Value fluctuation The value of investments, and any income from them, will fluctuate. This may partly be the result of changes in exchange rates. Investors may not get back the full amount invested Commodities Instruments providing exposure to commodities are generally considered to be high risk which means there is a greater risk of large fluctuations in the value of the instrument. Limited recourse If the issuer cannot pay the specified return, the precious metal will be used to repay investors. Investors will have no claim on the other assets of the Issuer. 11 Gold ETC vs Futures - Gold Market Dislocation
Important information
This document contains information that is for discussion purposes only, and is Accordingly, the Fund shall only be sold in Israel to an investor of the type listed
intended only for professional investors in Ireland, Austria, Germany, Finland, in the First Schedule to the Israeli Securities Law, 1968, which has confirmed in
Denmark, Belgium, Spain, Luxembourg, France, Italy, the UK, Portugal, writing that it falls within one of the categories listed therein (accompanied by
Sweden, the Netherlands, Norway, Qualified Clients in Israel, and Qualified external confirmation where this is required under ISA guidelines), that it is
Investors in Switzerland. Marketing materials may only be distributed in other aware of the implications of being considered such an investor and consents
jurisdictions in compliance with private placement rules and local regulations. thereto, and further that the Fund is being purchased for its own account and not
for the purpose of re-sale or distribution. This document may not be reproduced
Data as at 30 June 2020, unless otherwise stated.
or used for any other purpose, nor be furnished to any other person other than
By accepting this document you consent to communicating with us in English, those to whom copies have been sent. Nothing in this document should be
unless you inform us otherwise. considered investment advice or investment marketing as defined in the
Regulation of Investment Advice, Investment Marketing and Portfolio
All investment decisions must be based only on the most up to date legal Management Law, 1995 (“the Investment Advice Law”). Investors are
offering documents. The legal offering documents (fund & share class specific, encouraged to seek competent investment advice from a locally licensed
Key Information Document (KID), prospectus, annual & semi-annual reports, investment advisor prior to making any investment. Neither Invesco Ltd. Nor its
articles & trustee deed) are available free of charge at our website subsidiaries are licensed under the Investment Advice Law, nor does it carry the
etf.invesco.com and from the issuers. insurance as required of a licensee thereunder. This document does not
This document is marketing material and is not intended as a recommendation constitute an offer to sell or solicitation of an offer to buy any securities or fund
to buy or sell any particular asset class, security or strategy. Regulatory units other than the fund offered hereby, nor does it constitute an offer to sell to
requirements that require impartiality of investment/investment strategy or solicitation of an offer to buy from any person or persons in any state or other
recommendations are therefore not applicable nor are any prohibitions to trade jurisdiction in which such offer or solicitation would be unlawful, or in which the
before publication. person making such offer or solicitation is not qualified to do so, or to a person
or persons to whom it is unlawful to make such offer or solicitation.
This document should not be considered financial advice. Persons interested in
acquiring the fund should inform themselves as to (i) the legal requirements in The publication of the supplement in Italy does not imply any judgment by
the countries of their nationality, residence, ordinary residence or domicile; (ii) CONSOB on an investment in a product. The list of products listed in Italy, and
any foreign exchange controls and (iii) any relevant tax consequences. the offering documents for and the supplement of each ETF are available: (i) at
etf.invesco.com (along with the audited annual report and the unaudited half-
Any calculations and charts set out herein are indicative only, make certain year reports); and (ii) on the website of the Italian Stock Exchange
assumptions and no guarantee is given that future performance or results will borsaitaliana.it.
reflect the information herein.
This document has been communicated by Invesco Asset Management SA, 16-
For details on fees and other charges, please consult the prospectus, the KID 18 rue de Londres, 75009 Paris, France, Invesco Asset Management
and the supplement of each product. Deutschland GmbH, An der Welle 5, 60322 Frankfurt am Main, Germany,
For the full objectives and investment policy please consult the current Invesco Asset Management (Schweiz) AG, Talacker 34, 8001 Zurich,
prospectus. Switzerland, and Invesco Asset Management Limited, Perpetual Park, Perpetual
Park Drive, Henley-on-Thames, Oxfordshire, RG9 1HH, United Kingdom,
No action has been taken or will be taken in Israel that would permit a public authorised and regulated by the Financial Conduct Authority.
offering of the Fund or distribution of this document to the public in Israel. This
Fund has not been approved by the Israel Securities Authority (the ISA). EMEA 5415/2020
12 Gold ETC vs Futures - Gold Market DislocationThank you etf.invesco.com Find us on Bloomberg: GO
You can also read
