Positive inflows in gold-backed ETFs as investors hedge risk
Holdings in global gold-backed ETFs and similar products rose in October by 16.5 tonnes(t) to 2,346t, equivalent to US$1.0bn in inflows. This was the first monthly inflow in four months. Positive gold price performance for the month (+2.3% in USD) was a key driver of inflows in North American and European funds. Global assets under management (AUM) rose by 3.1% in US dollars relative to September.
Global stock markets experienced their worst October since the 2008 financial crisis with the MSCI All-World Index down more than 7.4% on the month. As a result, gold benefited from flight-to-safety investment flows. Further, US dollar-hedged gold benefited in the stronger dollar risk-off environment, rallying 4.3% on the month. The Solactive GLD Long USD Index is now effectively flat on the year, despite gold in US dollars being down 5.8% over the same period.
Flows in North American gold-backed ETFs were positive, led by inflows in US-listed funds and counterbalanced by softer outflows in Canadian funds. Europe also had inflows, driven primarily by UK-listed funds, with nearly half the European inflows coming from currency-hedged funds. Chinese-listed funds experienced extreme flows across funds, resulting in outflows equivalent to 8% of assets. This was the second straight month of significant outflows, driven in part by profit-taking from some investors as the gold price in yuan rose by as much as 5% in October.
**See note on tonnage/ flows differences below. **
Overall, gold trading volumes increased globally this month, including those of gold-backed ETFs, where volumes increased 32% above the y-t-d average. At the same time, positioning in COMEX futures became slightly positive but remains well below historical averages. As discussed in detail in our recent note Gold recoils amid selloff but may rebound, extreme bearish positioning in futures has historically preceded strong rallies in the price of gold.
North America led October inflows with 12.4 tonnes coming in to the region
- North American funds saw inflows of 12.4t (US$561mn, 1.2% AUM)
- Holdings in European funds rose by 10.5t (US$678mn, 1.7%)
- Funds listed in Asia decreased by 6.5t (US$259mn, 8.4%)
- Other regions saw a small increase in holdings of 0.2t (US$19mn, 1.5%)
SPDR® Gold Shares and iShares Gold Trust led global inflows
- SPDR® Gold Shares led global inflows, gaining 11.8t (US$475mn, 1.7%), while iShares Gold Trust added 5.0t (US$198mn, 2.0%). In Canada, Sprott Physical and the Central Fund each lost 4% of their assets
- European inflows were driven largely by euro- and franc-hedged funds, accounting for $234mn of Europe’s US$678mn total inflows
- Chinese-based fund, Huaan Yifu, led Asian inflows with 4.7t (US$186mn, 32%), while Bosera more than offset this number with outflows of 11.9t (US$467mn, 51%). This is the second straight month Bosera has lost significant assets
Global gold-backed ETFs have lost 0.44% of assets this year
- Collectively, flows in gold-backed ETFs remain negative by 25.8t (US$399, 0.44% AUM), despite the recent trend driven by a strong US dollar and bearish gold market sentiment
- North America reported a monthly inflow after six consecutive months of outflows, but remain negative on the year by 58.1t (US$2.5bn, 5.4% AUM)
- By contrast, European funds continue to see net positive inflows with $2.6bn coming in (6.4% AUM) y-t-d
- After starting the year strong, Asian funds have given up all their gains and are now negative losing 4% of their assets y-t-d
**Tonnage/ flows differences
We calculate gold-backed ETF flows both in ounces/tonnes of gold as well as in US dollars because these two metrics are relevant to understand the performance of the funds. 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 is reaching the funds. This month, the reported flows measured in tonnes of gold and their dollar value equivalent seem inconsistent across regions. Both figures are correct. The difference is the result of the interaction between the performance of the gold price intra-month, the direction of the dollar, and the timing of the flows. For example, Europe experienced outflows early in the month when the price of gold was low but gained assets later in month when the price of gold increased.