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Gold ETF inflows catch up to gold price strength

Published by , Editor
Global Mining Review,

Global gold ETFs added 61.3 t (US$3.4 billion, 1.7% assets under management [AUM]) in May, reversing three straight months of net outflows. The World Gold Council believes this to be largely a function of investment demand increasing with the price strength of gold, along with renewed inflation concerns in the market, a weaker dollar and lower real yields. Global AUM stand at 3628 t (US$222 billion). AUM is now only 9% shy of the August 2020 high of US$240 billion and 7% shy of the October 2020 tonnage high of 3908 billion.

May regional overview

Larger funds in the US, UK, and Germany were once again the primary driver of flows, flipping to net inflows. North American funds added 34.5 t (US$2.1 billion, 2%), while European funds saw inflows of 31.2 t (US$1.6 billion, 1.9%). Funds in 'Other' regions lost 1.9% of assets (-1 t, -US$69 million). Asian-listed funds had outflows for a second straight month (-US$210 million, -2.7%) coming almost entirely from China, which had strong local stock market strength. Asia does, however, remain the strongest region in terms of percentage growth this year, having added 11% to holdings, or 13.8 t through the end of May.

Low-cost gold ETF segment continues to grow

There continues to be strong inflows into low-cost ETFs across the globe, most recently evidenced by 6.3 t (US$366 million, 26%) into Xtrackers IE Physical Gold and 1.5 t (US$92 million, 2.2%) into SPDR® Gold MiniShares during May. The 8.3 t of net inflows in the low-cost space represented 13% of net global inflows during the month. The 181 t of low-cost assets now represents 5% of the total global gold ETF market compared with less than 3% a year ago.

Price performance and trading volumes

Gold finished the month 7.5% higher at US$1900/oz, breaking through resistance. Gold is now effectively flat on the year, rallying 13% in the last 2 months. The World Gold Council recently discussed gold’s stable volatility behaviour in its ‘Investment Update: Time to realise gold’s true volatility’, which highlights potential opportunities in the gold derivatives market and how gold’s volatility profile is key to its strength as a portfolio diversifier.

Gold daily trading averages rose meaningfully during May to US$176 billion, after falling for two straight months. This is slightly higher than the 2021 average of US$165 billion and below the 2020 average of US$183 billion, more in line with the 2019 average of US$146 billion. Net long positioning, via the recent Commitment of Traders (COT) report for gold COMEX futures, moved higher to 725 t (US$44 billion), the highest since early February 2021, but below the 2020 average net long level of 871 t (US$53 billion).7 The average weekly net long positioning historically remains around 500 t (US$31 billion).

The World Gold Council’s short-term price performance model suggested that all but two of the underlying variables we use had a positive contribution to gold’s performance – the first month this has happened since June 2011. The council also believes the recent strength of gold is due to a function of:

  • Higher inflation expectations.
  • The weaker US dollar.
  • Positive gold sentiment and price momentum.

Anecdotally, some additional supporting factors include:

  • Gold prices catching up to other commodities ‘reflation’ strength.
  • Strong holiday demand in China.
  • Increased central bank demand.

Regional flows

  • North American funds had inflows of 34.5 t (US$2.1 billion, 2%).
  • Holdings in European funds rose by 31.2 t (US$1.6 billion, 1.9%).
  • Funds listed in Asia had net outflows of 3.3 t (-US$210 million).
  • Other regions had outflows of 1 t (-US$69 million, 1.9%).

Individual flows

  • In North America, SPDR® Gold Shares added 26.2 t (US$1.6 billion, 2.7%), followed by iShares Gold Trust, which added 4.8 t (US$296 million, 1.1%). SPDR Gold MiniShares had holdings rise by 1.5 t (US$92 million, 2.2%), while Aberdeen Physical Gold Shares added 0.4 t (US$27 million, 1.2%).
  • In Europe, iShares Physical Gold ETC added 8.8 t (US$510 million, 4%) and Invesco Physical Gold added 6.4 t (US$383 million, 3.1%).
  • In Asia, Bosera Gold led outflows with 1.7 t (-US$103 million, -8.7%) coming out of the fund, followed by Huaan Yifu, which lost 1.2 t (-US$68 million, 3.9%).
  • 1nvest Gold was a standout in other regions. The South African fund lost 1.5 t or 52% of its assets during the month.

Long-term trends

  • Large US funds continue to drive net global inflows in both directions.
  • Gold ETF flows have started to catch up to the gold price rebound over the past few months.
  • Asian gold ETF holdings growth remains above 11% in 2021, but has slowed over the past 2 months.

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