Gold ETFs experienced net outflows of 6.4t (-US$340mn) in December, consistent with monthly outflows during much of H2 2021. North American outflows of 22t (-US$1.2bn) outweighed inflows into Europe and Asia, which gained a combined 16t (US$942mn) during the month. Other regions saw negative flows for the first time since August, losing US$68mn (-1.2t).4
North American outflows once again stemmed from larger US funds, likely triggered by the US Federal Reserve (Fed) indicating its intent for multiple interest rate hikes in 2022 to combat decades-high inflation, while planning to scale back asset purchases early in the year. On the other hand, inflows into Europe continued despite the Bank of England’s decision to raise interest rates. Demand was also supported by a flight-to-quality as the Omicron variant of COVID-19 sparked renewed lockdowns. Inflows into Asian ETFs were primarily due to tactical buying in China after the local gold price fell in late November and early December.
Price performance and trading volumes 2021
Gold finished the year around 4% lower at US$1,806/oz.5 The gold price rallied into year-end on the heels of the rapidly spreading Omicron variant, likely prompting flight-to-quality flows, but it was not enough to offset losses from early 2021. After H1 – when it dropped by more than 10% – gold was rangebound between US$1,700/oz and US$1,850/oz for much of the year. This was also reflected in gold’s realised volatility, which remained largely below its longer-term average of 16% after gold’s initial selloff during Q1.
Net long positioning, via the recent Commitment of Traders (COT) report for COMEX gold futures, oscillated alongside the gold price, falling to below 500t (US$27bn)6 in late March and rallying close to 900t (US$52bn) in mid-November as prices rose again. By the end of 2021 it had settled above 670t (US$41bn), markedly higher than its historical weekly average of around 500t (US$31bn).7
Our gold return attribution model suggests that gold’s performance in 2021 was driven, to an extent, by offsetting forces.
Gold faced headwinds from:
- higher bond yields, especially during Q1
- a stronger dollar – particularly in H2 2021 – relative to other developed market currencies.
Conversely, gold was supported by:
- concerns that inflation surprises would not be transitory
- market volatility linked to continued COVID variants and varying lockdown measures.
Looking ahead, we believe gold will experience similar dynamics in 2022. The persistence of high inflation is still likely due to knock-on effects from COVID-induced monetary and fiscal policies, supply-chain disruptions, and a tight labour market. This, combined with high equity market valuations, potential new COVID variants, and a growing appetite for less liquid assets, could well result in more frequent market pullbacks and increased demand for gold as a portfolio hedge. Gold may also find continued support from consumer demand and central bank purchases, both of which continue to be important long-term drivers of performance.
On the contrary, gold may also face challenges if interest rates rise quicker than currently anticipated. In our view, however, despite potential rate hikes both nominal and real interest rates will remain low from a historical perspective. This, in turn, will continue to drive structural changes in the composition of investment portfolios and likely increase the need for a high-quality liquid asset such as gold.
Look out for our Gold Outlook 2022 which will be published during the second week of January.
Outflows from North America in 2021 outweighed inflows from Asia and, to a lesser extent, Europe
- North American funds had outflows of 199.5t (-US$10.9bn, -8.9%)
- European funds had inflows of 0.7t (US$264mn, 0.3%)
- Funds listed in Asia had inflows of 25.4t (US$1.5bn, 20.4%)
- Other regions had marginal inflows of 0.1t (US$17mn, 0.5%).
SPDR® Gold Shares and iShares Gold Trust in the US and WisdomTree Physical Gold in the UK drove global outflows in 2021, partially offset by inflows into Xtrackers IE Physical Gold and Xetra Gold in Germany
- In North America, SPDR® Gold Shares had outflows of 195t (-US$10.7bn, -15.1%), while iShares Gold Trust lost 32.9t (-US$1.8bn, -5.6%)
- In Europe, low-cost Xtrackers IE Physical Gold had inflows of 33.6t (US$1.9bn), while Xetra Gold added 20.7t (US$1.2bn, 9.1%); on the other hand, WisdomTree Physical Gold had outflows of 25.2t (-US$1.4bn, -19.5%)
- In Asia, Chinese ETFs Huaan Yifu Gold had inflows of 5.9t (US$317mn, 20.2%), while Bosera Gold Exchange gained 5.4t (US$284mn, 24.8%)
- Low-cost ETFs overall had sizable inflows of 63.0t (US$3.7bn, 45%).