US Federal Reserve has lit the gold fuse and investors are pouring in through Exchange Traded Funds

Retail investors appear convinced that gold is ready to run and they are joining central banks in buying up the yellow metal.

A record Australian dollar price of $1.5m has been set for a 400oz gold bar. Picture: AFP

Heightened expectations of lower global interest rates have sparked a rush into gold by Australian investors, as the price of the yellow metal tests new records.

Though conditions have been ideal for gold throughout 2024 so far, retail investors did not begin to move into gold until May, when inflows for Exchange-Traded Funds (ETFs) turned positive – and they have been rising ever since.

Marc Jocum, investment strategist at Australia’s largest gold ETF, the GlobalX Gold ETF – which is valued at more than $3.2bn, says: “The global pattern has been repeated in our market, the inflows have picked up in the last few months and it is starting to accelerate now.”

Investment in gold through ETFs is the most easily tracked activity in gold. In Australia, there are two streams of inflows – investor money going into bullion-backed ETFs, and also into funds that buy a selection of listed gold miners.

The biggest area is bullion-based ETFs, where investors have combined with gold-buying central banks and China-based speculators to push gold prices higher. The arrival of China buyers in the gold market follows a move away from buying US Treasuries.

Gold is currently trading near US$2500 ($3700).

Gold buyers – institutional or private – all have one thing in common, they are betting that a looming cut in US rates will drive gold price higher.

Traditionally, declining US rates and a declining US dollar have been good news for gold.

The latest confirmation from US Federal Reserve chair, Jerome Powell, that US rates are set to be cut in the months ahead suggest the gold rally has further to run.

Investors are attracted to ETFs, which offer direct links with physical gold held in vaults. The GlobalX Gold ETF is linked with physical gold bullion held in London vaults run by JPMorgan Chase Bank – the ETFs can be redeemed for bullion.

Similarly, another major player with a listed product is the Perth Mint PM Gold fund, which is linked to gold bullion held at the Perth Mint and offers investors a guarantee from the state government of Western Australia.

For investors who wish to take a wider look at gold investing through holdings in listed mining companies, there is also a range of ETFs, including the Van Eck Gold Miners ETF and the Betashares Global Gold Miners ETF.

Investing in gold mining ETFs – as opposed to gold bullion ETFs – means the investor is open to more volatility as gold mining stocks have a range of factors that can determine their price apart from the fluctuations of the gold price.

Specialist gold investors will always be bullish on the yellow metal, but in recent months investors with a wider lens have been suggesting clear investment opportunities across the gold sector. Earlier this year, The Australian quoted Vasilios Piperoglou at fund manager Collins St Asset Management, who suggested: “I have never seen such a disconnect between the underlying commodity and equity prices.”

Justin Lin at Global X says: “Speculators are bullish on the precious metal as the Fed looks to start its rate cutting cycle in September. Traders will be keeping a keen eye on the Jackson Hole Symposium this week as a key indicator for the Fed’s preferred interest rate path.”