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
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.
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%).
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%).
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.