ETF Monthly commentary

Gold ETF inflows continued, but at a significantly lower pace

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October highlights

Gold-backed ETFs and similar products (gold ETFs) recorded their 11th consecutive month of net inflows during October, matching the record number of positive monthly flows set in April 2006. Gold ETF holdings increased by 20.3 tonnes (t), +US$1.4bn or 0.6% of assets under management (AUM), during the month as the gold price moved mostly sideways, finishing slightly below US$1,900/oz. Net inflows of 1,022t (US$57.1bn) in 2020, so far, have driven global gold ETF holdings to a new all-time high of 3,899t (US$235bn in AUM).1

 

ETF flows chart

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

Monthly regional overview

Positive inflows continued during October, albeit the lowest monthly increase in 2020, as most risk assets, like stocks, were lower on the month. Nearly all the net inflows came from European funds which added 20.2t (US$1.4bn, 1.4% AUM). North American funds added a nominal amount of 1.8t (US$166mn, 0.1%). Asian funds had small inflows of 1.1t (US$76mn, 1.0%), while funds listed in other regions experienced significant outflows relative to their size of 2.8t (US$144mn, 3.8%).

Quiet volumes and stable positioning, with rising implied volatility

Daily gold trading volumes fell meaningfully in October, to US$159bn, below the y-t-d average of US$186bn. This was largely driven by lower COMEX gold futures volumes—29% below the 2020 daily average. Net long positioning, via the recent Commitment of Traders (COT) report for gold COMEX futures, showed stable positioning at 766t (US$46bn)2, well below the average in 2020, but still above the long-term average. Short-term implied volatility in gold—or the expected future movements—increased from 17 to 20, not unexpected ahead of the US election, but put/call skew remained relatively flat—suggesting no expected directional bias in future prices. 

Global uncertainties remain as gold demand trends continue

The official US election day came and went, but uncertainty over the results will likely continue for some time. As we recently noted in Gold and the US election, the fundamental support for gold investment demand is unlikely to change regardless of the Presidential victor.

Our Q3 Gold Demand Trends highlighted a common 2020 theme. The global pandemic continues to hurt the economy, which in turn is negatively impacting consumer demand for jewellery and technology. On the flip side, investment demand, primarily through gold ETFs remains strong. 

Given the recent uptick in global COVID-19 cases, geopolitical and market uncertainty, and the expected long term, low-rate environment that improves gold’s opportunity cost3, we do not see this scenario changing in the coming months.

Regional flows4

European funds drove nearly all net inflows

  • Holdings in European funds increased by 20.2t (US$1.4bn, 1.4% AUM)
  • North American funds had inflows of 1.8t (US$166mn, 0.1%)
  • Funds listed in Asia saw holdings rise by 1.1t (US$76mn, 1.0%)
  • Other regions had outflows flows of 2.8t (US$144mn, 3.8%).

Individual flows

WisdomTree Physical Gold GBP Hedged and iShares Physical Gold collectively drove global inflows in October

  • In North America, iShares Gold Trust added 9.0t (US$557mn, 1.8%), followed by SPDR® Gold MiniShares5 which grew by 2.5t (US$152mn, 4.3%) as SPDR® Gold Shares led global outflows, losing 11.2t (US$648mn, 0.8%)
  • In Europe, WisdomTree Physical Gold GBP Hedged added 10.2t (US$633mn, 88%), followed by Invesco Physical Gold ETC, which added 3.0t (US$182mn, 1.3%). Both funds are listed in the UK. In France, Amundi Physical Gold led European outflows with 2.7t (US$167mn, 4.3%) coming out of the fund
  • In other regions, 1nvest Gold ETF lost 56% of its assets with outflows of 2.3t (US$137mn) during the month 

Long-term trends

Gold ETFs have added more than 1,000t for the first time ever, surpassing the 2009 record of 646t.

  • Collective gold ETF flows have added US$57bn y-t-d through October
  • Holdings in both tonnage and value terms continue to reach new highs
  • North American funds represent nearly 2/3 of global net inflows on the year.

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. Net longs represent Money Manager and Other Net long positioning in the COMEX futures market.

  3. As noted in our Gold mid-year outlook that—opportunity cost is one of the four key drivers of gold demand.

  4. 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 of how much investment reaches the funds. There are some months where the reported flows measured in tonnes of gold and their dollar-value equivalent seem inconsistent across regions. Both figures are correct. The disparity is due to the interaction between the performance of the gold price intra-month, the direction and movement of the US dollar and the timing of the flows. For example, hypothetically, if European funds were to experience outflows early in the month, when the price of gold was low, but gained assets later in the month when the price of gold increased, and/or if the euro/dollar currency rate moved meaningfully when there were flows, there might be a discrepancy between tonnage change and flows.

  5. Low-cost US-based gold-backed ETFs are defined as exchange traded open-ended funds listed in the US, backed by physical gold, with annual management fees of 20bps or less. At present, these include Aberdeen Physical Swiss Gold Shares, SPDR® Gold MiniShares, Graniteshares Gold Trust, and Perth Mint Physical Gold ETF.

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