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Outflows from gold ETFs accelerate in October

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Global Mining Review,

New data released by the World Gold Council reports that gold-backed ETFs (gold ETFs) experienced net outflows of 25.5 t (-US$1.4 billion, -0.7% AUM) in October. Outflows of near equal magnitude from Europe and North America were marginally offset by inflows in Asia. Global gold ETF holdings fell to 3567 t (US$203 billion) during the month – notching year-to-date (YTD) low levels – as investor appetite for gold diminished in the ETF space following price declines in August and September. However, this was countered by both a pickup in COMEX managed money net long positions in gold futures and evidence of continued strength in vaulted physical gold, suggesting some investors may be shifting gold ETF positions into physical exposure while prices recover.

Regional overview

North American and European gold ETFs both contributed to October’s outflows, led by larger funds in each region. North American funds had outflows of 14.7 t (-US$817 million) mostly due to losses from large US funds that were likely impacted by options market activity around expiry in mid-October. Once again funds in the UK, in addition to France, led outflows within Europe, which lost a combined 12 t ( US$703 million). The US Federal Reserve began tapering bond purchases this month, though primarily short-dated Treasuries were impacted ahead of the announcement with limited influence on gold. Meanwhile, outflows from Europe came on the heels of heightened expectations of interest rate hikes before the end of 2022 in the face of decades-high inflation, despite the European Central Bank’s insistence otherwise. In contrast to prior months, low-cost ETFs globally had net outflows, losing US$133 million (-2.4 t) as some US low-cost funds followed a similar trend to other funds in the region.

Conversely, Asian-listed funds were positive, adding inflows of 1.3 t (US$74 million), led by China where holdings rose to record highs stemming from weaker economic data and middling local equity market performance. Flows in India, however, were flat to slightly negative as investors shifted their focus from gold ETFs to physical bar and coin investment with the arrival of the Navaratri festival. Other regions also modestly contributed to total assets with inflows of 0.2 t (US$11 million).

Price performance and trading volumes

Gold finished the month up 1.5%, settling near US$1770/oz. The World Gold Council’s monthly return attribution model suggests that gold’s recovery in October was driven by a rise in inflation expectations indicated by breakeven rates, outweighing the concurrent increase in nominal interest rate yields. This led to a decline in US real yields, which briefly hit their lowest levels since early August, while the dollar depreciated accordingly, particularly against energy-led commodity currencies. US inflation expectations rose to their highest point in eight years as both Brent and WTI oil prices surged above US$80/bbl for the first time since 2014 amid global energy shortages and heightened winter demand in Europe and North America. Gold remains more than 6% lower on the year even after having its best month since July given headwinds in 1Q21 and 3Q21. Gold daily trading averages in October increased slightly to US$151 billion from US$146 billion in September, but remain lower than the YTD average of US$159 billion. Increases in both OTC and COMEX volumes were contributors, while net COMEX long futures positioning also rallied following stability in the gold price, increasing steadily throughout the month to above 70 0t (US$40 billion) for the first time since August. This figure sits well above the historical weekly average level of around 500 t (US$28 billion).

Regional flows

Outflows from North American and European funds in October significantly outweighed inflows into Asian funds.

  • North American funds had outflows of 14.7 t (-US$817 million, -0.8%).
  • Holdings in European funds had outflows of 12.3 t (US$703 million, -0.8%).
  • Funds listed in Asia had net inflows of 1.3 t (US$74 million, 1%).
  • Other regions had inflows of 0.2 t (US$11 million, 0.3%).

Individual flows

SPDR® Gold Shares and Gold MiniShares in the US and WisdomTree Physical Gold in the UK drove global outflows in October, partially offset by inflows into Asian funds and iShares Gold Trust Micro in the US.

  • In North America, SPDR Gold Shares lost 7.9 t (-US$428 million, -0.8%) while low-cost SPDR Gold MiniShares Trust had outflows of 4.1 t (-US$234 million, -5.3%). iShares Gold Trust Micro partially mitigated this with inflows of 3.1 t (US$179 million, 29.5%).
  • In Europe, WisdomTree Physical Gold had outflows of 4 t (-US$227 million, -3.8%) and iShares Physical Gold lost 3.7 t (-US$214 million, -1.7%). On the other hand, Xtrackers IE Physical Gold continued growing with inflows of 2 t (US$115 million, 5.7%).
  • In Asia, Chinese ETFs Bosera Gold Exchange had inflows of 0.8 t (US$47 million, 3.5%) while E Fund Gold added 0.6 t (US$33 million, 4.2%).

Long-term trends

Gold ETFs have experienced outflows in six of the first 10 months of the year as ETF investors have generally followed gold price trends.

  • YTD, gold ETFs have seen global outflows of US$9.7 billion (-181 t) as large North American and some European funds have lost assets in line with oscillating gold prices, while low-cost and Asian funds have remained mostly positive.
  • Outside of slightly negative 2Q21 flows, Asian gold ETFs have consistently stood out as the often lone growth driver among global funds, having added nearly US$1.3 billion (18%) YTD as concerns mount around regional economic growth.
  • Despite a weaker October, low-cost ETFs continue to post inflows regardless of price conditions, growing by almost 41% YTD (57.7 t), and constitute close to 6% of the total global gold ETF market.

Adam Perlaky, Senior Analyst, World Gold Council, commented: “North America and Europe experienced nearly identical ETF outflows this month, which outweighed record inflows in Asia. Those outflows are primarily a result of central bank policy. While the US Federal Reserve began tapering bond purchases this month, it had limited influence on gold. Meanwhile, despite the European Central Bank’s pledge against interest rate hikes, investors appeared to react to decades-high inflation.

“In recent years, gold has been inversely correlated with nominal interest rates, and yet gold strengthened during the month despite higher nominal rates. This is likely a result of rising inflation expectations, though changes in the relative move in interest rates may have had an impact. Ultimately, gold’s move higher could be attributed to investors pricing in future rate hikes, which is especially relevant given Fed Chairman Powell’s commentary this week. Though higher rates could be a headwind for gold, broader concerns of inflation and a potential recession highlights gold’s value as an effective portfolio hedge.”

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