ETF Monthly commentary

Gold ETF outflows for the first time in a year

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November highlights

In November, gold-backed ETFs and similar products (gold ETFs) recorded their first net outflows in twelve months and second largest monthly outflows ever.1 Gold ETF holdings decreased by 107 tonnes (t) during the month – US$6.8bn or 2.9% of assets under management (AUM) – as the gold price had its worst monthly move (-6.3%, US$1,763/oz) since November 2016, when it dipped 7.4%.

Despite lacklustre performance this month, net inflows of 916t (US$50.3bn) in 2020 remain well above the highest yearly amount on record, although below the record set last month (+1,022t).2 Total global holdings are now at 3,793t or US$215bn. 

 

ETF flows chart

Data as of

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

Monthly regional overview

Positive equity-market sentiment and a risk-on environment drove gold ETF outflows across all regions during November. Both North American and European funds each lost nearly 3% of assets (North America: -62t US$3.7bn; Europe: -43t, US$2.9bn). Asian funds had outflows of 0.4t (US$35mn, 0.5%), while funds listed in other regions had another month of outflows, relative to their size, of 2.0t (US$126mn, 3.3%).

Higher trading volumes and increased bearish positioning in the options space

In November, daily gold volumes increased, returning to just above the y-t-d averages, trading US$190bn a day. Despite gold’s weak performance, net long positioning – via the recent Commitment of Traders (COT) report for gold COMEX futures – showed minimal reductions at 746t (US$42bn)3, slightly below the 766t level in October. Net longs are well below the 2020 average but still above the long-term average. 

Notably, implied volatility, or the expected future price movement of gold, did not increase meaningfully, despite gold’s sell-off. However, put/call skew increased to one-year highs and call skew decreased to one-year lows. This suggests that while investors may not anticipate large absolute moves in the gold price, they are positioning much more for downside exposure than for upside exposure.

Global uncertainties remain as gold demand trends continue

Two major market risks – the US election and the pandemic - appear to have subsided given a relatively smooth and bi-partisan outcome of the US election and the announcement of successful COVID vaccines. This drove risky assets like stocks to all-time highs in some countries, and the MSCI World Stock index had its best monthly performance ever, highlighting the global impact of both developments. As these two risks subsided, investors reduced hedges, and this was reflected in the gold ETF outflows, higher bond yields, and stock market put/call ratios at extremely bullish levels.

While one of the drivers of gold demand is diversification in times of market stress, in such circumstances other drivers may come into play and influence pricing. Although our Q3 Gold Demand Trends highlighted a common 2020 theme – that a weaker global economy negatively impacted consumer demand for jewellery and technology – our recent data suggests that the improving Chinese economy and the festival season in India may have spurred consumer demand. 

Central banks resumed net gold buying in October having been quarterly net sellers in Q3 for the first time in ten years. Finally, as we have discussed frequently, the low-rate environment that improves gold’s opportunity cost4 is likely to remain, especially as many countries start to inject additional stimuli into their economies.
 

Regional flows5

Strong outflows across all regions

  • North American funds had outflows of 62.3t (US$3.7bn, 2.9% AUM)
  • Holdings in European funds decreased by 42.4t (US$2.9bn, 2.9%)
  • Funds listed in Asia saw holdings fall by 0.4t (US$35mn, 0.5%)
  • Other regions had outflows of 2.0t (US$126mn, 3.3%).

Individual flows

SPDR® Gold Shares led global outflows losing US$3.7bn or nearly 5% of its assets

  • In North America, iShares Gold Trust added 0.8t (US$57mn, 0.2%), while SPDR® Gold Shares lost 62.9t (US$3.7bn, 4.9%), followed by Graniteshares Gold Trust, which lost 2.2t (US$132mn, 10.4%)
  • In Europe, a few currency-hedged funds had meaningful inflows as WisdomTree Physical Gold GBP Hedged and WisdomTree Physical Swiss Gold added 5% and 4% to their holdings, respectively. However, two other UK-based funds led European outflows: WisdomTree Physical Gold lost 13.8t (US$828mn, 10.0%), while iShares Physical Gold lost 13.4t (US$801mn, 5.3%)

Long-term trends

Gold ETFs have added nearly 50% more assets in 2020 (916t) than the 2009 record of 646t. 

  • Despite record-setting inflows in 2020, inflows slowed in recent months and turned negative for the first time in a year
  • Investment demand for gold via ETFs remains strong
  • North American funds represent nearly two-thirds of global net inflows on the year.
     

Footnotes

  1. The record monthly outflows occurred in April 2013 when gold ETFs lost over US$8bn.

  2. Between January and October 2020, net inflows reached a total of 1,022t, based on our most current data. We regularly review the global gold-backed ETF universe and adjust the list of funds and holdings based on newly available data and information. 

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

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

  5. 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.

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