ETF Monthly commentary

Gold ETFs continue growth with slight inflows in July

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July highlights

Flows into global gold ETFs were marginally positive in July, with inflows of 11.1 tonnes (t) (US$669mn, +0.3% AUM). Inflows into European and Asian funds were mostly offset by outflows from large North American funds. Overall, the positive flows came alongside a recovery in gold prices, particularly in the latter half of the month amid concerns of uncertain global growth outlook and a reaffirmed commitment by central banks to continue easy money policies despite elevated inflation. Global Assets Under Management (AUM) stand at 3,636t (US$214bn),1 approximately 7% below the October 2020 record tonnage high of 3,909t.2

 

ETF flows chart

Data as of

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

Regional overview

In a reverse from the previous month, European funds, particularly in Germany and the UK, were the primary source of inflows in July, while larger US funds led outflows. Funds in Europe added 17.1t (US$999mn, 1.1%) as opposed to North American funds, which saw outflows of 7.3t (-US$402mn, -0.4%). Inflows among European gold ETFs occurred across countries and fund size following the European Central Bank’s (ECB) pledge to keep monetary policy supportive of growth, whereas outflows in North America were almost entirely driven by large US funds. In fact, the two largest US funds alone had combined outflows of more than US$1.1bn, amid record high equities.

Meanwhile, low-cost gold ETFs3 continued to drive growth and helped offset outflows, while contributing a combined US$695mn (12.0t) to flows across North America and Europe. Asian-listed funds also continued inflows of 0.7% (1.0t, US$54mn), supported by positive investment demand in China due to strength in the local gold price amid equity declines, while fund flows in ‘Other’ regions grew by 0.6% (0.3t, US$19mn).4

Price performance and trading volumes

Gold recovered some of its losses from June, finishing the month 3.6% higher at US$1,826/oz on the heels of lower interest rates and a favourable monetary policy outlook.5 It is now 3.3% lower on the year after getting back to flat coming into June. Gold daily trading averages remained in line with June levels at US$163bn per day and near the y-t-d average of US$165bn, though still below the 2020 average of US$183bn. However, COMEX volumes increased from last month’s lows, while net long positioning, via the recent Commitment of Traders (COT) report for COMEX gold futures, increased to 640t (US$37bn),6Greturning to levels seen before the June sell-off and in line with the weekly average net long positioning this year.7

Market commentary

Our short-term price performance model suggested that similar to recent months, the key drivers of gold performance during July were related to changes in momentum and interest rates. Specifically, we believe the latest recovery in gold prices is a function of:

  • mean reversion in gold prices following June’s precipitous decline 
  • a fall in US Treasury yields to levels last seen in early February
  • increased net long positioning and ETF flows.

Looking forward, additional supporting factors include:

  • an historically strong September bolstered by seasonal consumer demand
  • higher inflation expectations, particularly if the Federal Reserve stands by its remarks prioritising employment over inflation.

For more details see Gold Market Commentary, July 2021.

Regional flows8

European fund inflows were mostly offset by North American fund outflows

  • European funds had inflows of 17.1t (US$999mn, 1.1%)
  • Holdings in North American funds declined by 7.3t (-US$402mn, -0.4%)
  • Funds listed in Asia had net inflows of 1.0t (US$54mn, 0.7%)
  • Other regions had inflows of 0.3t (US$19mn, 0.6%).

Individual flows

iShares Gold Trust Micro in the US and Invesco Physical Gold in the UK led global inflows in July 

  • In North America, SPDR® Gold Shares lost 14.3t (-US$808mn, -1.4%), while iShares Gold Trust had outflows of 5.2t (-US$301mn, -1.1%). On the other hand, recently launched iShares Gold Trust Micro added 9.8t (US$568mn),9 and SPDR® Gold MiniShares added 0.5t (US$27mn, 0.6%), which, combined with other low-cost US funds, helped offset some of the outflows
  • In Europe, Invesco Physical Gold had inflows of 5.4t (US$313mn, 2.5%), while Xetra Gold added 3.4t (US$199mn, 1.5%) and UBS ETF Gold increased holdings by 1.8t (US$103mn, 5.6%)
  • In Asia, inflows into E Fund Gold in China of 1.6t (US$91mn, 13.7%) were partially offset by outflows from Huaan Yifu Gold ETF, which lost 0.7t (-US$40mn, -2.4%).

Long-term trends

Steady inflows across most regions since April have not sufficiently offset heavy Q1 losses

  • To date, global gold ETFs have seen outflows of US$6.1bn (-118t), led by North American funds while partially offset by growth in Asia 
  • After a rocky start to the year, European funds are back to net positive following improved investor sentiment and price momentum, while large US funds continue to drive net global flows, both positively and negatively, in tandem with gold price fluctuations
  • Low-cost ETFs, having posted inflows each month and growing by 40% y-t-d (56.2t), now represent more than 5% of the total global gold ETF market
  • Despite slowing inflows recently, due to a robust Q1 Asian gold ETFs have led global growth y-t-d, adding more than US$1.0bn (14%) in 2021 thus far.

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 July 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 July 2021.

  6. Based on the LBMA Gold Price PM as of 27 July 2021.

  7. From 5 January 2021 to 27 July 2021, based on available data.

  8. 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.
  9. A large portion of iShares Gold Trust Micro (IAUM) inflows was likely a transfer from iShares Gold Trust (IAU), which operates under the same parent company with higher management fees.

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