Rising gold ETF inflows set to drive global bullion prices
Fri Sep 27 2024
Inflows into gold exchange-traded funds (ETFs), particularly from Western investors, are expected to increase in the coming months, adding more upward momentum to already record-high bullion prices, analysts have said, according to a Reuters report.
Gold prices have risen by 27% this year, reaching $2,600 per ounce, primarily driven by looser central bank monetary policies and geopolitical tensions. Recent interest rate cuts in the US, Europe, and China have fuelled optimism for further gains, with expectations that gold prices could reach a new high of $3,000.
Exchange-traded products (ETPs), or ETFs, allow investors to gain exposure to gold without physically holding the metal. Any increase in ETP holdings is significant for prices, as these funds are backed by the physical commodity. A rise in inflows will reduce the available supply of gold on the market, further boosting prices.
Analysts at Standard Chartered expect inflows into ETPs to accelerate now that central banks have begun cutting interest rates, Reuters said. This will likely support the next phase of gold's price rally. ETP flows, which tend to correlate with real yields and the value of the dollar, have turned positive. While Europe initially drove most of the inflows, North America has seen a resurgence of interest over the past two months, the news agency added.
According to the World Gold Council (WGC), global gold ETFs recorded inflows of 28.5 tonnes, or $2.1bn, in August, with all regions contributing positively. Western funds accounted for the largest share, with North America adding 17.2 tonnes, or $1.4bn, in the same month. Softer US economic data, dovish Federal Reserve comments, a weaker dollar, and lower yields helped drive these inflows, according to the WGC.
Major financial institutions, such as J.P. Morgan, Goldman Sachs, Citi, and UBS, have reiterated their bullish outlook on gold, predicting further price increases as ETF holdings grow. Goldman Sachs noted that the Federal Reserve’s rate cuts are expected to attract Western capital back into gold ETFs, a factor that has been largely absent from the gold rally in the past two years, Reuters reported.
J.P. Morgan also highlighted that retail-focused ETF inflows will be crucial for sustaining the ongoing gold rally and has projected a peak price of $2,850 by 2025.
Spot gold recently hit a record high of $2,639.95 per ounce, driven by expectations of further monetary easing and geopolitical concerns. Lower interest rates reduce the opportunity cost of holding non-yielding assets like gold, which is seen as a safe haven during periods of market instability.
Ole Hansen, head of commodity strategy at Saxo Bank, noted that while falling interest rates have underpinned the surge in ETF demand, it remains to be seen whether investors are willing to buy gold at such elevated prices.
Source: https://www.intellinews.com/