ETF Monthly commentary

Outflows from gold ETFs accelerate in October led by North America and Europe

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October highlights

Gold-backed ETFs (gold ETFs)1 experienced net outflows of 25.5 tonnes (t) (-US$1.4bn, -0.7% AUM) in October. Outflows of near equal magnitude from Europe and North America were marginally offset by inflows in Asia. Global gold ETF holdings fell to 3,567t (US$203bn) during the month2 – notching year-to-date low levels – as investor appetite for gold diminished in the ETF space following price declines in August and September. However, this was countered by both a pickup in COMEX managed money net long positions in gold futures and evidence of continued strength in vaulted physical gold, suggesting some investors may be shifting gold ETF positions into physical exposure while prices recover.3

 

ETF flows chart

Data as of

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

 

Regional overview

North American and European gold ETFs both contributed to October’s outflows, led by larger funds in each region. North American funds had outflows of 14.7t (-US$817mn) mostly due to losses from large US funds that were likely impacted by options market activity around expiry in mid-October. Once again funds in the UK, in addition to France, led outflows within Europe, which lost a combined 12t (‑US$703mn). The US Federal Reserve began tapering bond purchases this month, though primarily short-dated Treasuries were impacted ahead of the announcement with limited influence on gold. Meanwhile, outflows from Europe came on the heels of heightened expectations of interest rate hikes before the end of 2022 in the face of decades-high inflation, despite the European Central Bank’s insistence otherwise. In contrast to prior months, low-cost ETFs4 globally had net outflows, losing US$133mn (-2.4t) as some US low-cost funds followed a similar trend to other funds in the region.

Conversely, Asian-listed funds were positive, adding inflows of 1.3t (US$74mn), led by China where holdings rose to record highs stemming from weaker economic data and middling local equity market performance. Other regions also modestly contributed to total assets with inflows of 0.2t (US$11mn).5

Price performance and trading volumes

Gold finished the month up 1.5%, settling near US$1,770/oz.6 Our monthly return attribution model suggests that gold’s recovery in October was driven by a rise in inflation expectations indicated by breakeven rates,7 outweighing the concurrent increase in nominal interest rate yields. This led to a decline in US real yields, which briefly hit their lowest levels since early August, while the dollar depreciated accordingly, particularly against energy-led commodity currencies. US inflation expectations rose to their highest point in eight years as both Brent and WTI oil prices surged above US$80/barrel for the first time since 2014 amid global energy shortages and heightened winter demand in Europe and North America. Gold remains more than 6% lower on the year even after having its best month since July given headwinds in Q1 and Q3. Gold daily trading averages in October increased slightly to US$151bn from US$146bn in September, but remain lower than the year-to-date average of US$159bn. Increases in both OTC and COMEX volumes were contributors, while net COMEX long futures positioning also rallied following stability in the gold price, increasing steadily throughout the month to above 700t (US$40n) for the first time since August.8 This figure sits well above the historical weekly average level of around 500t (US$28bn).9 For more details see Gold Market Commentary, October 2021. 

Regional flows10

Outflows from North American and European funds in October significantly outweighed inflows into Asian funds

  • North American funds had outflows of 14.7t (-US$817mn, -0.8%)
  • Holdings in European funds had outflows of 12.3t (US$703mn, -0.8%)
  • Funds listed in Asia had net inflows of 1.3t (US$74mn, 1.0%)
  • Other regions had inflows of 0.2t (US$11mn, 0.3%).

Individual flows

SPDR® Gold Shares and Gold MiniShares in the US and WisdomTree Physical Gold in the UK drove global outflows in October, partially offset by inflows into Asian funds and iShares Gold Trust Micro in the US 

  • In North America, SPDR® Gold Shares lost 7.9t (-US$428mn, -0.8%) while low-cost SPDR® Gold MiniShares Trust had outflows of 4.1t (-US$234mn, -5.3%). iShares Gold Trust Micro partially mitigated this with inflows of 3.1t (US$179mn, 29.5%) 
  • In Europe, WisdomTree Physical Gold had outflows of 4.0t (-US$227mn, -3.8%) and iShares Physical Gold lost 3.7t (-US$214mn, -1.7%). On the other hand, Xtrackers IE Physical Gold continued growing with inflows of 2.0t (US$115mn, 5.7%)
  • In Asia, Chinese ETFs Bosera Gold Exchange had inflows of 0.8t (US$47mn, 3.5%) while E Fund Gold added 0.6t (US$33mn, 4.2%).

Long-term trends

Gold ETFs have experienced outflows in six of the first ten months of the year as ETF investors have generally followed gold price trends

  • Year-to-date, gold ETFs have seen global outflows of US$9.7bn (-181t) as large North American and some European funds have lost assets in line with oscillating gold prices, while low-cost and Asian funds have remained mostly positive
  • Outside of slightly negative Q2 flows, Asian gold ETFs have consistently stood out as the often lone growth driver among global funds, having added nearly US$1.3bn (18%) y-t-d as concerns mount around regional economic growth 
  • Despite a weaker October, low-cost ETFs continue to post inflows regardless of price conditions, growing by almost 41% y-t-d (57.7t), and constitute close to 6% of the total global gold ETF market.

Footnotes

  1. We periodically 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 October 2021.

  3. Based on the LBMA Gold Price PM as of 26 October 2021, the last date of available weekly COMEX positioning data.

  4. 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.

  5. ‘Other’ regions include Australia, South Africa, Turkey, Saudi Arabia, and the United Arab Emirates.

  6. Based on the LBMA Gold Price PM as of 31 October 2021.

  7. Based on the Bloomberg US Government Generic 10-year Yield and the US 10-year Breakeven Inflation Index. 

  8. Based on COMEX positioning data as of 26 October 2021.

  9. From 4 December 2012 to 26 October 2021, based on available data.

  10. 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.

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