ETF

Biggest global gold ETFs by AUM see $3.9 bn outflow in 5 months. Check why

Thu May 30 2024

 

The world’s largest gold exchange traded funds (ETFs) by assets under management (AUM) GDX, Vaneck Vectors Gold Miners ETF ($13.26 billion) and GLD, SPDR Gold Trust ETF ($61.71 billion), have seen a net outflow of $3.946 billion calendar year to date (CYTD), S&P Global Market Intelligence said in a recent note.

 

Both these funds, it said, only managed positive flows only during two out of the first five months of the year

 

“After expanding the universe of ETFs investing in gold, a majority of funds have been experiencing a similar trend, with sizable outflows being seen since the beginning of the year. Net flows across the following six funds have totaled -$4.96 billion since the beginning of 2024 (to May 24, 2024),” the S&P Global Market Intelligence note said.

 

In the January - March 2024 quarter, WGC said, global gold ETFs saw an eighth consecutive quarter of outflows. Despite a 114 tonne, or 4 per cent drop in ETF holdings to 3,113 tonne during this period, the AUM (in US dollar terms), WGC said, rose to their highest for almost two years at $222 billion during the recently concluded quarter, thanks to gold’s strong price performance. 

 

At a regional level, US-and European-listed ETFs both saw a 4 per cent fall in holdings.

 

"ETF demand remains notable by its absence, particularly in Europe – where, anecdotally, institutions refusing to hold negative yielding bonds shifted into gold a few years ago. It seems likely that the past year has seen a cashing out of gold back into positive yielding bonds, and this might become harder to sustain if and when policy rates are cut. The US has shown a glimmer of hope during April, but rate cuts might be needed to help trigger sustained inflows. Sticky inflation and labour market strength suggest there will be a bit of a wait," WGC said.

 

On the other hand, gold prices have seen a rise in the last few months amid steady demand, especially from the global central banks.

This demand surge, S&P Global Market Intelligence said, has mostly been triggered by geopolitical developments and growing uncertainty regarding inflationary trends seen across a number of economies. This, in turn, has seen gold prices rise nearly 13 per cent CYTD.

“As central banks embark upon a period of interest rate divergence, investors can also expect to see growing volatility in currency markets. As interest rates move, currencies either strengthen or weaken and gold is often used as a hedge against this risk. This may explain why ETF buyers may not be too enthusiastic about its recent increase in valuation, as when coupled with lack of periodic cash flows, higher than average management fees and the fact that gold has little industrial value (unlike silver), the commodity is likely to remain less attractive for retail portfolios,” the note said.

 

Shoring up reserves

Central bank's net demand for gold globally, according to a World Gold Council (WGC) report, hit 290 tonnes in the  January - March 2024 quarter, up 1 per cent as compared to 286.2 tonnes in the previous corresponding period. This was the strongest start to any calendar year on record, WGC said.

Gold buying by central banks in the March 2024 quarter was 69 per cent higher than the five-year quarterly average (171 tonnes). Reported purchases remained broad-based, with China, Turkey and India leading the way. 

 

Meanwhile, gold prices have seen a steady climb in the last one year. From a level of $1943 an ounce on May 31, 2023, the yellow metal has surged 19.3 per cent to hit $2,343 an ounce now, down marginally from its recent peak of $2,427 an ounce, WGC data shows.

 

 

 

According to Commodity Futures Trading Commission (CFTC) data, S&P Global Market Intelligence said, hedge funds and other large speculators have been increasing their net-long positions in Comex futures and options (F&O) after buying 21,030 contracts during the week ending May 21. Despite such an interest shown by hedge funds and other large speculators, the overall activity across gold ETFs remains muted.

 

Source: https://www.business-standard.com/