Physical gold ETFs see first net inflows in 12 months in May - World Gold Council
Wed June 12 2024
Volatility is picking up in the gold market as prices saw their sharpest decline in two years last week; however, the precious metal also showed strength as it attracted new investors last month. In its monthly analysis of gold-backed exchange-traded funds released Thursday, the World Gold Council (WGC) announced that global flows turned net positive in May, ending 12 consecutive months of outflows.
However, investment demand still has a big hole to dig itself out of. “With improved gold ETF demand in May, collective holdings rebounded to 3,088t, but remaining -8.2% below the 2023 average,” the analysts said in the report.
The WGC noted that Asian markets continue to see growing interest in paper gold investments. Meanwhile, European demand turned positive last month, while North American interest in gold was slightly negative.
In a regional breakdown, North American-listed funds saw net outflows of 2.3 tonnes, valued at $139 million. The WGC noted that May saw the smallest decrease in holdings since December 2019. “Investor interest appeared to be drawn to spikes in geopolitical risks as sporadic gold ETF inflows coincided with upticks in the Geopolitical Risk Index,” the analysts said.
For the year, North American gold holdings have declined by more than 69 tonnes, valued at $4.3 billion. Analysts noted that while geopolitical uncertainty has provided some safe-haven demand for gold, hawkish posturing from the Federal Reserve, as it maintains its restrictive monetary policy, creates some selling pressure.
Across the Atlantic, European ETFs saw inflows of 5.6 tonnes, valued at $287 million. However, the WGC noted that the market remains mixed as Eurozone funds attracted investors while UK funds saw outflows.
“Inflows were mainly driven by expectations that the ECB would cut rates in early June, as primarily reflected in Swiss and German funds: May marks the second occasion this year that Germany has experienced inflows, and the first time Switzerland has recorded inflows since July 2023,” the analysts said. “However, an earlier-than-expected UK election paired with stickier-than-anticipated inflation pushed back investor expectations for rate cuts by the Bank of England.”
While Asian demand is relatively small compared to the broader marketplace, it continues to attract significant market attention as investors, led by China, increased their exposure to gold ETFs for 15 consecutive months. Asian funds saw inflows of 5 tonnes last month, valued at $398 million.
“Although this marks the region’s smallest inflow since November 2023, Asia’s continued inflow streak is the second longest on record,” the analysts said. “Key drivers of gold ETF demand in the country were the local gold price rise, which refreshed its all-time high, and continued weakness in the local currency.”
Analysts note that improved investor demand last month came as prices held critical support above $2,300 an ounce. Although gold continues to consolidate in a relatively wide range, it has held critical support.
Looking ahead, a growing chorus of analysts have said that gold investment demand should see significant improvement this year as the Federal Reserve embarks on a new easing cycle before the end of the year.
Gold suffered a significant setback Friday, seeing its worst selloff since 2022 after stronger-than-expected employment data pushed back the timing of the Fed’s first rate cut.
Although the U.S. economy continues to create jobs, some analysts have said that labor market data won’t stop the Federal Reserve from lowering interest rates. Although 272,000 jobs were created last month, full-time employment dropped sharply while part-time positions increased.
Source: https://kitco.com/