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Gold ETFs continue to slide in September driving net outflows in 3Q21

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Global Mining Review,

Gold-backed ETFs (gold ETFs) experienced net outflows of 15.2 t (- US$830 million, - 0.4% AUM) in September. Outflows in Europe and North America were only partially offset by inflows in Asia. Global gold ETF holdings fell to 3592 t (US$201 billion) during the month – the lowest tonnage level since April – as the gold price fell on the back of rising yields, a stronger dollar, and a reduction in COMEX managed money net long positions.

September regional overview

European gold ETFs were the primary driver of September’s outflows, followed by North American funds. Larger funds in the UK and Germany led outflows within Europe, which as a whole lost 11.5 t (- US$640 mil-lion). North America had collective outflows of 6.6 t (- US$349 million) attributed mostly to losses from large US funds. Outflows from both regions stemmed from central banks announcing policy tightening going forward – the European Central Bank from its pandemic emergency purchase programme only, while the US Federal Reserve signalled asset tapering in 4Q21 with higher expectations of interest rate increases next year as well. In contrast, Asian-listed funds ended the quarter positive with inflows of 2.4 t (US$135 million), supported again by weakness in Chinese equities in late September, rocked by the Evergrande liquidity crisis. In addition, heightened stock market volatility and a correction in the domestic gold price drove holdings in Indian gold ETFs to their highest level since September 2013. Other regions also contributed to global gold ETFs with inflows of 0.4 t (US$25 million).

Price performance and trading volumes

Gold ended the month approximately 4% lower at US$1743/oz. The World Gold Council’s short-term price performance model suggests that gold’s sell-off in September was driven by changes in interest rates, a stronger US dollar, and momentum in futures positioning. Yields rose to quarterly highs in response to central banks’ comments surrounding a likely moderation in easy money policies. In turn, this supported dollar strength as real yields mostly increased in lockstep with nominal yields given anchored US inflation expectations. This sent gold negative for the quarter, and more than 8% lower on the year after having its worst month since June. Gold daily trading averages increased to US$146 billion in September off lows of US$141 billion in August, but still below the year-to-date (YTD) average of US$160 billion. COMEX volumes only marginally increased from YTD lows in August, while net long futures positioning reflected a general apathy towards gold as of late, reducing to 537 t (US$30 billion) in the second half of the month. However, this remains just above the historical weekly average level of approximately 500 t (US$28 billion).

3Q21 highlights

Gold ETF flows generally tracked gold price fluctuations during 3Q21, led by outflows from North American funds which lost 46.3 t (- US$2.6 billion, -2.4%) overall. North American outflows were dominated by larger US funds, with a majority of losses coming in August. European funds proved more resilient to price declines over the period as inflation expectations continued to notch higher, resulting in net inflows of 15.2 t (US$909 million, 1%). This was driven by German funds which, similar to the second quarter, represented more than half of all flows into Europe (8.9 t, US$516 million). Low-cost ETFs across these regions continued to exhibit strong growth and helped mitigate outflows, adding a total of US$920 million (15.9 t).

Funds in Asia had inflows of US$228 million (3%) in the quarter as investment demand remained strong amid volatile local equity markets, particularly in China in the face of stalling economic growth. Moreover, falling gold prices spurred some investors to tactically build to gold positions at the dip. Other regions saw inflows of US$13 million (0.4%) during 3Q21, supported by weakness in emerging market equities.

Regional flows

  • Outflows from European and North American funds in September outweighed inflows into Asian funds.
  • European funds had outflows of 11.5 t (- US$640 million, - 0.7%).
  • Holdings in North American funds had outflows of 6.6 t (- US$349 million, - 0.3%).
  • Funds listed in Asia had net inflows of 2.4 t (US$135 million, 1.7%).
  • Other regions had inflows of 0.4 t (US$25 million, 0.7%).

Individual flows

  • SPDR® Gold Shares in the US and iShares Physical Gold in the UK drove global outflows in September, partially offset by inflows into Asian funds and iShares Gold Trust in the US.
  • In North America, SPDR Gold Shares lost 10.2 t (- US$561 million, -1%), while iShares Gold Trust had inflows of 2.5 t (US$145 million, 0.5%). Low-cost ETFs iShares Gold Trust Micro gained 0.6 t (US$37 million, 6.2%) and Goldman Sachs Physical Gold added 0.5 t (US$29 million, 7.6%) .
  • In Europe, iShares Physical Gold had outflows of 6.2 t (- US$351 million, - 2.7%) and Invesco Physical Gold lost 1.5 t (- US$81 million, - 0.6%). On the other hand, Xtrackers IE Physical Gold had inflows of 1.7 t (US$93 million, 4.7%), while Xetra Gold added 0.8 t (US$48 million, 0.3%).
  • In Asia, Huaan Yifu Gold ETF in China had inflows of 1.1 t (US$58 million, 3.4%), while in India Nippon India Gold added 0.5 t (US$31 million, 3.9%).

Long-term trends

  • After a partial recovery in 2Q21, gold ETF flows across developed markets are again flat to negative in 3Q21 following continued weakness in gold prices.
  • YTD, gold ETFs have seen global outflows of US$8.3 billion (- 156 t) as large North American and some European funds have lost assets in accordance with fluctuating gold prices, while low-cost and Asian funds have remained steadily positive.
  • Bouncing back from declining inflows in 2Q21, Asian gold ETFs are once again the primary growth driver among global ETFs, having added nearly US$1.2 billion (17%) YTD on the heels of higher regional economic uncertainty.
  • Low-cost ETFs continue to post inflows despite varying price conditions, growing by almost 43% YTD (60.1 t), and constitute approximately 6% of the total global gold ETF market.

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