Gold ETF flows slow in June but finish positive in Q2: World Gold Council

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Gold prices have declined more than 6% during the first half of the year. Much of this weakness, as per the latest World Gold Council report, is due to a combination of – higher interest rates, especially during Q1, concerns over rising inflation, and also price momentum.

Global gold ETFs also lost nearly $7 billion (-129t, -3.0%) in the first half of 2021, as inflows in Q2 could not overcome steep outflows in Q1 when gold prices fell by 10%.

Q1 outflows primarily came from North America, led by large funds in the US, while strong inflows from Asia at the same time could not sufficiently offset these losses. Inflows to North American and European funds drove much of the recovery in Q2 as gold prices rebounded.

June highlights

Flows into global gold ETFs were mostly flat in June, with slight inflows of 2.9 tonnes. Inflows into North American and Asian funds were primarily offset by outflows from European funds. Overall, the positive flows came in spite of significant gold price weakness in the latter half of the month on the heels of a relatively hawkish Federal Reserve (Fed) outlook, suggesting that investors may have taken advantage of the lower price level to gain long gold exposure

Q2 gold ETF trends 

As gold prices rebounded throughout most of the second quarter, flows into gold ETFs followed suit, led by North American and European funds which added a combined 43.8 tonnes ($2.7 billion, 1.2%) over the period. In Europe, German funds represented nearly half of all European inflows (27.2 tonnes, $1.6billion)

Funds in Asia had small outflows of $92 million (-1.2%) in the quarter as June’s inflows were not enough to offset the heavy losses from May. Rising risk appetite and profit-taking amid higher gold prices earlier in the quarter led to some weakness in Asia, but this reversed trend towards the end of the period with investors likely building strategic long exposure to gold as inflationary pressures intensified.

ETF in South Africa, which lost more than 75% of its value in Q2 (-2.3 tonnes, – $136mn) was likely driven by profit-taking following hawkish comments from the recent FOMC meeting.

As for the long-term trends, Low-cost ETFs, with combined holdings of 185tonnes, now represent 5% of the total global gold ETF market. Asian gold ETFs have led global growth in percentage terms, adding more than 13% in 2021.

Why is this data important?

Gold-backed ETFs account for a significant part of the gold market, with institutional investors and individuals using them to implement their investment strategies. Collective gold holdings across funds have averaged around 2,200 tonnes over the past ten years.

This data set increases transparency in the gold market. Individual ETFs are transparent because they are listed on regulated markets, but it is cumbersome and time-consuming to track the entire universe of gold-backed funds.

Gold outlook

The World Gold Council looks believes there is remaining upside potential for gold investment this year. The factors which are likely to support this as per the WGC report include – expectations that central banks will likely maintain an accommodative monetary policy for some time, keeping opportunity costs of holding gold low. The current levels of money supply and savings rates in certain developed markets that suggest a higher inflation rate may not just be temporary, reinforcing the need for assets like gold.

“The global economic recovery is expected to support consumer demand, but the spread of new COVID19 variants may create weakness in key markets such as India. Finally, central bank demand so far this year has been robust and our annual survey indicates gold continues to be viewed as a valuable hedge in foreign reserves”, said World Gold Council.