ETF Monthly commentary

Gold ETFs reverse course in August driven by North American outflows

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August highlights

Gold-backed ETFs (gold ETFs) experienced net outflows in August of 22.4 tonnes (t) (-US$1.3bn, -0.6% AUM), as North American outflows outweighed inflows into European and Asian funds. Gold faced headwinds early in August as the dollar briefly strengthened and rising Treasury yields weighed on investment flows, triggering momentum selling shortly thereafter. Gold prices recovered late in the month, but it did not spur sufficient offsetting inflows, as global holdings fell to 3,611t (US$211bn)1 – the lowest tonnage level since May.2

 

 

ETF flows chart

Data as of

Sources: Bloomberg, Company Filings, ICE Benchmark Administration, World Gold Council; Disclaimer

Regional overview

Larger US funds were the primary source of outflows in August, as was the case in July. Global low-cost gold ETFs3 as well as larger funds in the UK and Germany registered the largest inflows. Funds in North America lost 32.2t (-US$1.8bn, -1.7%) in contrast to European funds, which saw inflows of 9.6t (US$550mn, 0.6%). European inflows occurred against a backdrop of Eurozone inflation rising to its highest level in nearly a decade, while regional central banks cautioned that the economic recovery may be slower than expected due to COVID variant concerns. Conversely, outflows in North America were almost entirely driven by large US funds, with the two largest alone losing nearly US$2bn combined. 

Despite price volatility throughout the month, low-cost gold ETFs across regions continued to attract inflows, including in the US where they helped partially offset outflows from larger funds. Overall, the low-cost space saw a combined US$112mn (1.9t) of inflows in North America and Europe. Asian-listed funds also saw inflows of 0.5% (0.8t, US$40mn), likely supported by weakness in Chinese equities and investors strategically allocating to gold following the price dip. Other regions detracted from global ETF growth with outflows of 0.8% (-0.5t, -US$30mn).4

Price performance and trading volumes

Gold ended the month about 0.6% lower at US$1,815/oz. Gold’s performance was dented by a rising dollar and higher yields in response to strong US jobs data and anticipation that the Federal Reserve would announce a tapering of bond purchases in 2021.5 As a result, gold remains approximately 4% lower on the year having not yet recovered from losses in June. Gold daily trading averages dropped to US$141bn per day in August, well below July levels of US$165bn and the y-t-d average of US$163bn. This was led by a decline in COMEX volumes to y-t-d lows, while net long positioning in COMEX gold futures increased to 712t (US$42bn) by month-end, the highest levels since early-June after recovering from initial declines in positioning following price volatility.6

Market commentary

Our short-term price performance model suggests that the price drop in August was driven by changes in momentum and interest rates. Despite a recovery in price in the second half of the month, the initial unexpected sharp early-hours selloff amid low liquidity conditions may have unnerved some investors, leading to reduced investment demand. Specific developments include:

  • a recovery in US Treasury yields after declining for each of the previous four months 
  • a deceleration in ETF flows from July weighed down by outflows from North American funds.

Looking forward, while headwinds including central bank tapering may still exist for gold, some supporting factors are:

  • an historically strong September bolstered by seasonal consumer demand and common investment flows
  • persistently high inflation reports as well as elevated expectations across regions
  • middling equity returns in emerging markets that have driven more investors to hedge portfolios 

For more details see Gold Market Commentary, August 2021.

Regional flows7

Outflows in North American funds outweighed inflows into European and Asian funds

  • North American funds had outflows of 32.2t (-US$1.8bn, -1.7%)
  • Holdings in European funds had inflows of 9.6t (US$550mn, 0.6%)
  • Funds listed in Asia had net inflows of 0.8t (US$40mn, 0.5%)
  • Other regions had outflows of 0.5t (-US$30mn, -0.8%).

Individual flows

SPDR® Gold Shares and iShares Gold Trust in the US drove global outflows in August, partially mitigated by inflows into Invesco Physical Gold in the UK

  • In North America, SPDR® Gold Shares lost 31.2t (-US$1.8bn, -2.9%), while iShares Gold Trust had outflows of 3.7t (-US$210mn, -0.7%). On the other hand, SPDR® Gold MiniShares added 1.4t (US$81mn, 1.8%) while Sprott Physical Gold Trust had inflows of 0.8t (US$46mn, 0.9%), which helped to marginally offset some outflows
  • In Europe, Invesco Physical Gold had inflows of 9.2t (US$529mn, 4.0%) and Xetra Gold added 2.7t (US$152mn, 1.1%), while iShares Physical Gold reduced holdings by 1.4t (-US$78mn, -0.6%)
  • In Asia, inflows into Chinese funds Bosera Gold Exchange of 0.5t (US$28mn, 2.1%) and E Fund Gold of 0.4t (US$19mn, 2.4%) were partially offset by outflows from ICICI Prudential Gold ETF in India, which lost 0.3t (-US$21mn, -8.1%).

Long-term trends

After heavy Q1 losses, ETF flows across most regions since April have remained generally positive while oscillating in North America amid rangebound gold prices

  • Year-to-date, gold ETFs have seen global outflows of US$7.4bn (-141t) as larger funds, particularly in North America, have lost assets and moved in tandem with gold prices, while investment demand has grown in low-cost funds as well as Asia despite price fluctuations 
  • Despite slowing inflows in Q2, given a robust start to the year Asian gold ETFs have led global growth y-t-d, adding more than US$1.0bn (15%) as flows have become positive again recently
  • After a rocky start to the year, European funds have swung back to net positive following improved investor sentiment supported by higher inflation expectations and a weaker growth outlook 
  • Low-cost ETFs, having posted inflows each month and growing by more than 40% y-t-d (58.1t), account for the vast majority of growth in European ETFs this year and now represent close to 6% of the total global gold ETF market.

Footnotes

  1. We regularly review the global gold-backed ETF universe and adjust the list of funds and holdings based on newly available data and information.

  2. Based on the LBMA Gold Price PM as of 31 August 2021.

  3. Low-cost US-based gold-backed ETFs are defined by the World Gold Council as exchange-traded open-ended funds listed in the US and Europe, backed by physical gold, with annual management fees and other expenses like FX costs of 20bps or less. At present, these include Aberdeen Physical Swiss Gold Shares, SPDR® Gold MiniShares, Graniteshares Gold Trust, Goldman Sachs Physical Gold ETF, iShares Gold Trust Micro, CI Gold Bullion Fund, WisdomTree Core Physical Gold, and Xtrackers IE Physical Gold ETC.

  4. ‘Other’ regions include Australia, South Africa, Turkey, Saudi Arabia, and the United Arab Emirates.

  5.  Based on the LBMA Gold Price PM as of 31 August 2021.

  6. Based on the LBMA Gold Price PM as of 31 August 2021.

  7. We calculate gold-backed ETF flows both in ounces/tonnes of gold and in US dollars because these two metrics are relevant in understanding funds’ performance. The change in tonnes gives a direct measure of how holdings evolve, while the dollar value of flows is a finance-industry standard that gives a perspective on how much investment reaches the funds. We have made a few adjustments and improvements to our calculation methodology as of 1 July 2021 that will impact historical and future data. Specifically, we revised the methodology used to estimate changes in gold holdings as described below:

    • Previously, changes in tonnes were calculated by converting a fund’s AUM (in USD) into gold holdings (in tonnes) and computing the difference over periods. However, currency movements and large daily and weekly gold price movements could distort the difference between tonnage change and US-dollar fund flows during short time horizons. We therefore adjusted tonnage change as a function of fund flows versus AUM and replaced the tonnage change field with fund flows (tonnes).
    • Now, for most funds, we estimate US-dollar fund flows, as described in section 2.3.2 below, and then convert those flows to fund flows (tonnes). 
    • Fund flows (tonnes) and US-dollar fund flows will now represent a more aligned explanation of investment demand for gold ETFs, while the true holdings of a fund, in US dollars and tonnage, will remain a close estimate, impacted by the currency and price volatility described above.
    • Based on our initial analysis, the changes are not likely to have a material long-term effect on historical information, particularly on a global or regional aggregate basis, but will adjust short-term fluctuations that can sometimes occur due to input data and timing variations.

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