In a recent report released by the World Gold Council (WGC), global physically backed gold exchange traded funds (ETFs) suffered a substantial setback, recording a combined outflow of $6.7 billion during the first half of the calendar year 2024 (H1-CY24). This represents the largest decline in a first half-year period since 2013. According to the WGC, total holdings of gold ETFs plummeted by 120 tonnes, equating to a 3.9% decrease, bringing the total holdings to 3,105 tonnes by mid-year.
While Asian funds experienced a record inflow of $3 billion in H1-CY24, this surge was overshadowed by significant outflows totaling $9.8 billion from North America and Europe combined, highlighting stark regional disparities in investor sentiment towards gold.
The report noted that Western investors in gold ETFs did not react as expected to the increase in gold prices, despite the typical correlation between higher prices and increased investment flows. Factors contributing to this subdued response included elevated interest rates and a prevailing risk-on sentiment buoyed by advancements in artificial intelligence.
Conversely, Asian markets exhibited a more synchronized response to gold’s price dynamics, particularly benefiting from weaknesses in non-dollar currencies and robust performance of gold denominated in those currencies. According to WGC, these factors attracted substantial investor interest in the region.
The WGC defines gold ETFs as regulated securities that hold physical gold, encompassing various types such as open-ended funds traded on exchanges, closed-end funds, and mutual funds. Monitoring these funds involves tracking their gold holdings, typically measured in tonnes, as well as the equivalent value in US dollars (AUM). The council also analyzes changes over time in fund demand and flows as key indicators of market trends.
Asia Emerges as an Exception
Asia emerged as a notable outlier in the global gold ETF landscape, recording inflows totaling $3.1 billion in H1-CY24, surpassing all other regions and marking the strongest first half-year period on record for the region’s funds. The surge was primarily driven by unprecedented inflows into China and Japan, pushing total assets under management (AUM) for Asian funds to a historic high of $14 billion, accompanied by an increase of 41 tonnes in collective holdings.
In contrast, North America witnessed significant outflows amounting to $4.9 billion, marking its largest such decline in three years despite a 13% rise in the price of gold during the same period, which contributed to a 7.7% increase in total AUM for North American funds.
Similarly, European funds faced their bleakest performance since 2013, recording outflows of $8 billion alongside a 6% decrease in holdings. However, a higher gold price supported a 6.3% increase in total AUM for European funds during H1.
Consistent Trends in June
The trend observed in H1 continued into June, with global physically backed gold ETFs recording their second consecutive monthly inflow, attracting $1.4 billion in investments. Notably, all regions except North America experienced gains, with the latter reporting mild losses totaling $573 million for the second consecutive month.
According to the WGC, reduced yields in key regions and weaknesses in non-dollar currencies contributed to heightened interest in gold among local investors during June.
European funds mirrored this global trend by adding $1.4 billion in June, helping to mitigate the region’s overall H1 outflow to $4.9 billion. The WGC attributed this resilience in part to divergent monetary policies adopted by central banks in Europe, which differed notably from the approach of the US Federal Reserve.
For instance, the European Central Bank (ECB) initiated its first rate cut in nearly five years in June, while the Swiss National Bank implemented its second rate reduction of 2024. In the UK, the Bank of England (BoE) hinted at a potential rate cut amidst political uncertainties surrounding a surprise general election announcement.
“Lower yields were instrumental in driving inflows to the region (Europe) in June,” stated the WGC report. “Additionally, declining equities and political uncertainties stemming from elections in the UK and France spurred significant investor interest in gold.”
The WGC’s analysis underscores the complex interplay of economic indicators and investor behavior influencing global gold ETF markets, highlighting divergent regional dynamics amid evolving global economic conditions.
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