ETF Monthly commentary

Gold ETF flows slow in June but finish positive in Q2

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June highlights

Flows into global gold ETFs were mostly flat in June, with slight inflows of 2.9 tonnes (t) (US$191mn, +0.1% AUM). Inflows into North American and Asian funds were primarily offset by outflows from European funds. Overall, the positive flows came in spite of significant gold price weakness in the latter half of the month on the heels of a relatively hawkish Federal Reserve (Fed) outlook, suggesting that investors may have taken advantage of the lower price level to gain long gold exposure.1 Global Assets Under Management (AUM) stands at 3,624t (US$206bn),2 approximately 7% shy of the October 2020 record tonnage high of 3,909t.3 

US funds as well as low-cost gold ETFs4 in Europe were the primary source of inflows, while larger European funds, particularly in the UK and Germany, led outflows. North American funds added 10.5t (US$646mn, 0.6%) in contrast to European funds, which saw outflows of 9.4t (-US$560mn, -0.6%). Notably, low-cost gold ETFs contributed US$222mn (3.8t) to the combined flows seen in North America and Europe. Asian-listed funds reversed a recent trend to post inflows of 1.7% (2.3t, US$136mn) supported by positive flows in India and China, while fund flows in ‘Other’ regions fell by 0.8% (-0.5t, -US$30mn).5

 

ETF flows chart

Data as of

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

Price performance and trading volumes

After dropping 6% in the second week of June following the Federal Open Market Committee (FOMC) meeting, gold finished the month 7.2% lower at US$1,763/oz, erasing price gains from May.6 Gold daily trading averages fell during June to US$163bn per day compared to US$176bn in May, led by lower COMEX volumes. Trading volume during the month remained in line with the y-t-d average of US$165bn per day, but below the 2020 average of US$183bn. Net long positioning, via the recent Commitment of Traders (COT) report for COMEX gold futures, fell to 522t (US$29bn ),7 near April-end levels and in line with its historical weekly average net long positioning of around 500t (US$31bn).8

Q2 2021 highlights

As gold prices rebounded throughout most of the second quarter, flows into gold ETFs followed suit, led by North American and European funds which added a combined 43.8t (US$2.7bn, 1.2%) over the period. In Europe, German funds represented nearly half of all European inflows (27.2t, US$1.6bn), led by Xtrackers IE Physical Gold which gained US$1.5bn (26.5t). Meanwhile, Amundi Physical Gold ETC in France added US$583mn (10.0t, 19.8%) to help French-based funds grow by 20% over the quarter. In North America, SPDR® Gold Shares and SPDR® Gold MiniShares led inflows, adding US$615mn (1.1%) and US$225mn (5.7%) respectively, while Sprott Physical Gold Trust added US$124mn (2.8%), and iShares Gold Trust gained US$100mn (0.4%).

Funds in Asia had small outflows of US$92mn (-1.2%) in the quarter as June’s inflows were not enough to offset the heavy losses from May. Rising risk appetite and profit-taking amid higher gold prices earlier in the quarter led to some weakness in Asia, but this reversed trend towards the end of the period with investors likely building strategic long exposure to gold as inflationary pressures intensified. Flows in ‘Other’ regions saw US$89mn (-2.6%) in outflows during the second quarter, dominated by the 1nvest Gold ETF in South Africa, which lost more than 75% of its value in Q2 (-2.3t, -US$136mn) likely driven by profit-taking following hawkish comments from the recent FOMC meeting, according to anecdotal evidence from our contacts in the region.

2021 review and mid-year outlook

Gold prices have declined more than 6% year-to-date.9 As explained by our short-term price performance model, much of this weakness so far is due to a combination of:

  • higher interest rates, especially during Q1
  • concerns over rising inflation expectations and inflation surprises
  • price momentum and positioning 

Global gold ETFs lost nearly $7bn (-129t, -3.0%) in the first half of 2021, as inflows in Q2 could not overcome steep outflows in Q1 when gold prices fell by 10%.10 Q1 outflows primarily came from North America, led by large funds in the US, while strong inflows from Asia at the same time could not sufficiently offset these losses. Inflows to North American and European funds drove much of the recovery in Q2 as gold prices rebounded. 

Looking forward, the current macroeconomic environment as well as anecdotal evidence indicates remaining upside potential for gold investment this year. Some specific factors which support this include:

  • expectations that central banks will likely maintain accommodative monetary policy for some time, keeping opportunity costs of holding gold low 
  • current levels of money supply and savings rates in certain developed markets that suggest a higher inflation rate may not just be temporary, reinforcing the need for assets like gold.

In addition, the global economic recovery is expected to support consumer demand, but the spread of new COVID-19 variants may create weakness in key markets such as India. Finally, central bank demand so far this year has been robust and our annual survey indicates gold continues to be viewed as a valuable hedge in foreign reserves. 

For more details see Gold mid-year outlook 2021.

Regional flows11

North American fund inflows were offset by European fund outflows

  • North American funds had inflows of 10.5t (US$646mn, 0.6%)
  • Holdings in European funds declined by 9.4t (-US$560mn, -0.6%)
  • Funds listed in Asia had net inflows of 2.3t (US$136mn, 1.7%)
  • Other regions had outflows of 0.5t (-US$30mn, -0.8%)

Individual flows

iShares Gold Trust led global inflows in June, followed by Xtrackers IE Physical Gold Euro Hedged

  • In North America, iShares Gold Trust added 4.4t (US$262mn, 0.9%), followed by SPDR® Gold Shares, which added 2.5t (US$173mn, 0.3%). Holdings in CI Gold Bullion Fund rose by 1.4t (US$83mn, 23.3%), while SPDR® Gold MiniShares added 1.0t (US$59mn, 1.3%)
  • In Europe12, iShares Physical Gold ETC led global outflows losing 8.9t (-US$520mn, -3.6%), while Invesco Physical Gold lost 4.3t (-US$246mn, -1.8%). On the flip side, Xtrackers IE Physical Gold added 1.6t (US$92mn, 4.8%) and Amundi Physical Gold gained 1.4t (US$80mn, 2.1%), offsetting some of the outflows
  • In Asia, Bosera Gold led inflows with 0.9t (US$51mn, 3.8%), followed by E Fund Gold, which gained 0.6t (US$32mn, 4.7%)
  • 1nvest Gold remained a standout in other regions. The South African fund lost 0.6t or 38% of its assets during the month.

Long-term trends

Global gold ETF AUM remained relatively stable but is still nearly 14% below the all-time August 2020 highs

  • To date, global gold ETFs have seen outflows of US$6.8bn (-129t) in outflows as Q2 inflows were not enough to offset heavy Q1 losses
  • Large US funds continue to drive net global flows positively and negatively with gold price fluctuations, while low-cost funds continue to grow at a steady pace
  • Low-cost ETFs, with combined holdings of 185t, now represent 5% of the total global gold ETF market
  • Asian gold ETFs have led global growth in percentage terms adding more than 13% in 2021.

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 30 June 2021.

  3. Low-cost 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’ region includes Australia, South Africa, Turkey, Saudi Arabia and the United Arab Emirates.

  5. Based on the LBMA Gold Price PM as of 30 June 2021.

  6. Based on the LBMA Gold Price PM as of 30 June 2021.

  7. From 4 December 2012 to 29 June 2021, based on available data.

  8. Based on the LBMA Gold Price PM as of 30 June 2021.

  9. Based on the LBMA Gold Price PM as of 31 March 2021.

  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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