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Gold ETF inflows continue at lower pace

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Global Mining Review,

Gold-backed ETFs and similar products (gold ETFs) recorded their 11th consecutive month of net inflows during October, matching the record number of positive monthly flows set in April 2006. Gold ETF holdings increased by 20.3 t, +US$1.4 billion or 0.6% of assets under management (AUM), during the month as the gold price moved mostly sideways, finishing slightly below US$1900/oz. Net inflows of 1022t (US$57.1 billion) in 2020, so far, have driven global gold ETF holdings to a new all-time high of 3899 t (US$235 billion in AUM).

Monthly regional overview

Positive inflows continued during October, albeit the lowest monthly increase in 2020, as most risk assets, like stocks, were lower on the month. Nearly all the net inflows came from European funds which added 20.2 t (US$1.4 billion, 1.4% AUM). North American funds added a nominal amount of 1.8 t (US$166 million, 0.1%). Asian funds had small inflows of 1.1 t (US$76 million, 1%), while funds listed in other regions experienced significant outflows relative to their size of 2.8 t (US$144 million, 3.8%).

Quiet volumes and stable positioning, with rising implied volatility

Daily gold trading volumes fell meaningfully in October, to US$159 billion, below the y-t-d average of US$186 billion. This was largely driven by lower COMEX gold futures volumes – 29% below the 2020 daily average. Net long positioning, via the recent Commitment of Traders (COT) report for gold COMEX futures, showed stable positioning at 766 t (US$46 billion), well below the average in 2020, but still above the long-term average. Short-term implied volatility in gold – or the expected future movements – increased from 17 to 20, not unexpected ahead of the US election, but put/call skew remained relatively flat – suggesting no expected directional bias in future prices.

Global uncertainties remain as gold demand trends continue

The official US election day came and went, but uncertainty over the results will likely continue for some time. As we recently noted in ‘Gold and the US election’, the fundamental support for gold investment demand is unlikely to change regardless of the Presidential victor.

The World Gold Council’s 3Q20 Gold Demand Trends highlighted a common 2020 theme. The global pandemic continues to hurt the economy, which in turn is negatively impacting consumer demand for jewellery and technology. On the flip side, investment demand, primarily through gold ETFs, remains strong.

Given the recent uptick in global COVID-19 cases, geopolitical and market uncertainty, and the expected long term, low-rate environment that improves gold’s opportunity cost, the council does not see this scenario changing in the coming months.

Regional flows

European funds drove nearly all net inflows:

  • Holdings in European funds increased by 20.2 t (US$1.4 billion, 1.4% AUM).
  • North American funds had inflows of 1.8 t (US$166 million, 0.1%).
  • Funds listed in Asia saw holdings rise by 1.1 t (US$76 million, 1%).
  • Other regions had outflows flows of 2.8 t (US$144 million, 3.8%).

Individual flows

WisdomTree Physical Gold GBP Hedged and iShares Physical Gold collectively drove global inflows in October:

  • In North America, iShares Gold Trust added 9 t (US$557 million, 1.8%), followed by SPDR® Gold MiniShares which grew by 2.5 t (US$152 million, 4.3%) as SPDR Gold Shares led global outflows, losing 11.2 t (US$648 million, 0.8%).
  • In Europe, WisdomTree Physical Gold GBP Hedged added 10.2 t (US$633 million, 88%), followed by Invesco Physical Gold ETC, which added 3 t (US$182 million, 1.3%). Both funds are listed in the UK. In France, Amundi Physical Gold led European outflows with 2.7 t (US$167 million, 4.3%) coming out of the fund.
  • In other regions, 1nvest Gold ETF lost 56% of its assets with outflows of 2.3 t (US$137 million) during the month.

Long-term trends

Gold ETFs have added more than 1000 t for the first time ever, surpassing the 2009 record of 646 t.

Collective gold ETF flows have added US$57 billion y-t-d through October while holdings in both tonnage and value terms continue to reach new highs.

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