ETF Monthly commentary

Gold ETF inflows total almost 14t in January as outlook remains supportive for gold investment

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January Highlights

Global gold ETFs saw inflows of 13.8 tonnes (t) (US$1bn, 0.4%) in January, after two consecutive months of outflows in November and December, which had totalled 148.8t. Global assets under management (AUM) now stands at 3,765t (US$226bn), just 4% shy of the intra-month record 3,915.8t (US$244bn) set in early November. 1 

 

ETF flows chart

Data as of

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

Regional overview

At a regional level, performance was mixed. Inflows were seen in Europe and other regions, while North America saw outflows and Asia was virtually flat during the month. European funds accounted for the bulk of the global inflows, as gold holdings rose by 17.5t (US$1.1bn, 1.2%). UK-listed funds led the way, adding 9.4t, followed by German- and French-listed funds. Funds in other regions saw the largest m-o-m change (relative to size), with regional holdings rising by 2.7t (US$182mn, 4.9%). Holdings in North American funds, which account for 53% of global AUM, fell fractionally by 6.3t (-US$303mn, -0.2%) in January. Holdings in Asian funds were effectively flat during the month, with AUM up by US$19.2mn, as inflows slowed largely a function of rising real yields, a strong equity market and a strengthening renminbi (RMB) in China.

Price performance and trading volumes

Gold in US dollar-terms fell fractionally (-1.3%) in January to finish at US$1,863.8/oz. This left gold as one of the weakest performing assets during the month, particularly when compared to the broader commodities complex. As the new year ushered in the start of the Biden Administration, there was renewed hope for further fiscal stimulus in the US, supported by the Federal Reserve maintaining their dovish stance; this kept gold constrained, and it spent much of the month in a narrow US$20/oz range and finding resistance at the US$1,860/oz level. Short-term implied volatility in gold – reflecting market expectations of future movements in the price – remained stable at 17.

Trading volumes for gold finished the month at US$186bn per day, fractionally above the 2020 average of US$183bn, but significantly higher than December as COMEX gold futures volumes almost doubled in January – US$61bn vs US$34bn the previous month. Net long positioning, via the recent Commitment of Traders (COT) report for gold COMEX futures, fell at the start of the month before slowly recovering to 782t, below the 2020 average net long level of 871t.2

Gold drivers in 2021

As we noted in our Gold Outlook 2021, investment demand should remain well supported this year. We believe that investors continue to face several portfolio risks which they must navigate:

  • ballooning budget deficits
  • concerns around increasing inflationary pressures
  • the potential for equity market corrections as valuations remain high.

And the opportunity cost of holding gold is likely to remain low for the foreseeable future. For example, the Federal Reserve Chairman, Jerome Powell, has indicated that interest rates in the US would be kept low to provide continued support for an economic recovery.3

Gold’s strong 2020 performance, a year in which it had one of its lowest historical drawdowns, helped investors limit losses and manage volatility risk. In the light of this, we anticipate that investors will continue to view an allocation to gold favourably as a hedge against the ongoing risks mentioned above. Gold ETF inflows in January appear to provide support for this view. 
 

Regional flows4

European funds captured the lion’s share of inflows

  • North American funds had outflows of 6.3t (-US$302.7mn, -0.2% AUM)
  • Holdings in European funds grew by 17.5t (US$1.1bn, 1.2%)
  • Funds listed in Asia had minimal net inflows of US$19.2mn (0.3%)
  • Other regions had inflows of 2.7t (US$181.9mn, 4.9%).

Individual flows

Invesco Physical Gold (UK) led inflows while SPDR® Gold Shares (US) saw the largest decline

  • In Europe, UK-listed fund Invesco Physical Gold (6.9t, US$421.1mn, 3%) led global inflows, followed by Amundi Physical Gold (4.6t, US$278.1mn, 8.5%) and iShares Physical Gold (3.4t, US$217.1mn, 1.5%). However, UK-listed funds Gold Bullion Securities (-1t, -US$60.1mn, -1.3%) and WisdomTree Physical Gold (-1t, -US$59.3mn, -0.8%) also registered notable declines in AUM.
  • In North America, SPDR® Gold Shares shed 10.6t (-US$575.9mn, -0.8%). SPDR® Gold MiniShares had holdings rise by 3.1t (US$186.4mn, 4.6%), followed by iShares Gold Trust added 1.7t (US$117.3mn, 0.4%) 
  • In Asia, three Chinese funds were in the bottom ten individual fund flows: Huaan Yifu Gold (-0.5t, -US$31.7mn, -2%), E Fund Gold Tradable Open-end Securities Investment Fund (-0.4t, -US$25.6mn, -4.3%), and Bosera Gold (-0.2t, -US$16mn, -1.4%)

Long-term trends

Global AUM now stands at 3,765t, just 4% shy of the intra-month record set in early November 2020

  • Following record-setting inflows in the first 10 months of 2020, flows turned negative in November and December, before reversing course again in the first month of 2021 
  • Investment demand for gold via ETFs remains strong and a primary driver of overall gold demand
  • Asian gold ETFs holdings have grown by more than 50% over the past 12 months
  • Low-cost gold-backed ETFs grew meaningfully during 2020, and generally continued to see inflows in January.5

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. 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.

  4. 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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