Gold exchange-traded funds (ETFs) have experienced a notable shift in investment flows, moving from Asia to Western markets as the precious metal reaches new record prices. This change comes as trust funds in China and India, which had seen strong growth, begin to shrink, while those in Europe and North America are expanding following a period of significant profit-taking.
According to the World Gold Council, gold ETFs listed in Asia have contracted by 5.3 tonnes over the past two weeks. This marks the largest two-week outflow since Russia’s invasion of Ukraine in February 2022, reversing a trend where these funds had expanded in 38 out of the previous 52 weeks.
Conversely, gold ETFs in Europe and North America experienced consistent declines from June 2023 to May 2024, as investors regularly took profits. However, these funds have now expanded in seven of the past eight weeks, marking the strongest period of growth in 27 months. The giant GLD gold-backed ETF remained stable in size on Monday, while the IAU, another major ETF listed in New York, grew by 0.2%. Together, their combined holdings remained close to July’s end total of 1,227 tonnes, the highest monthly total so far in 2024.
Meanwhile, investment funds in mainland China and Hong Kong reached a record combined size by the end of July, having expanded by 49.8% in the first seven months of 2024. Gold ETFs in India also neared their highest levels since early 2013. However, Asian gold ETFs saw a second consecutive week of decline last week, decreasing by 2.0% as fresh profit-taking reversed some of this year’s gains.
Jonathan Butler, head of business development and strategy at Mitsubishi’s precious metals division, highlighted the recent Western pivot towards gold. He noted a “modest uptick in global gold ETF holdings of around 3% since early June,” indicating renewed interest from Western investors.
Speculative activity in gold futures and options on the Comex – traded on the CME exchange in New York – has also surged as gold prices hit new highs. The net long position of Managed Money traders climbed back to its highest level since mid-July, reaching 155% of the long-term average, according to data from the U.S. Commodity Futures Trading Commission (CFTC).
Despite this growth, both Butler and Nicky Shiels, a strategist at bullion refining and finance group MKS Pamp, suggest there is still potential for further increases. Shiels points out that the growth in Western ETF and derivatives positions is relatively modest given the current price levels, implying that more significant inflows and price gains could be on the horizon. With expectations that the U.S. Federal Reserve will soon begin cutting interest rates from their current two-decade highs, she argues that recent investor inflows are only a quarter of the size of those seen ahead of the 2019 rate-cutting cycle.
Even with gold prices breaking above $2,500 per Troy ounce for the first time last week, Shiels notes that not all investors are fully committed yet. She suggests that the “Powell Pivot” – reinforced by dovish comments from the Fed chairman at the recent Jackson Hole symposium – alongside any potential weakening of the U.S. dollar, could accelerate inflows leading up to the U.S. elections in November.
Butler also points out that gold is about to enter a period of traditionally high physical demand, driven by upcoming events such as China’s National Day holidays and the Indian wedding and festival season. Wayne Gordon, commodities strategist at UBS, emphasizes that events like Dussehra and Diwali are crucial for gold jewelry demand in India, the world’s second-largest consumer market for gold.
While India’s recent surprise cut to gold import duties initially boosted demand through formal channels and reduced smuggling, Gordon warns that “physical demand for gold is under pressure as prices continue to make higher highs and higher lows.”
In China, the world’s largest market for gold mining, imports, consumer demand, and central bank purchases, gold prices have recently traded below global benchmarks for seven consecutive sessions. This is the longest such period since June 2021, signaling weaker demand compared to local supplies and contrasting sharply with the record-high premiums seen in Shanghai prior to the global price surge last autumn.