Gold ETF flows reverse after mini-bull run

February saw a fall in the holdings in gold-backed ETFs, the first fall after four straight months of inflows.

The data from the World Gold Council showed the equivalent of $1.3bn in outflows over the month while global assets under management was also off by 2% in US dollar terms to $105bn.

However, Juan Carlos Artigas, the director of investment research, pointed out that global gold-backed ETF flows remain positive on the year on the back of the strong inflows in January. “Total global gold-backed ETF holdings of 2,479 tonnes, remain near levels last seen in early 2013, when the price of gold was 23% higher,” he said.

Indeed, in the past seven months ETFs added around $800m, representing growth of 67%.

The WGC said the primary driver was outflows from North American funds while Asian funds also suffered small falls. European and other regions were flat.

The WGC said that market uncertainty remains a concern, citing US/China trade relations, Brexit, economic slowing and lofty stock market valuations are worrying investors.

“In addition, the Fed has signalled a ‘wait and see’ approach which may influence the rate at which other central banks tighten monetary policy,” the WGC said in its summary. “Both monetary policy and the direction of the US dollar will be a key driver for gold this year and may support gold investment.”

Regional flows

  • North American funds had outflows of 29t (US$1.2bn, 2.3% AUM)
  • Holdings in European funds were fractionally higher (tonnage loss but fund inflows) -0.3t (+US$37mn, 0.1%) **
  • Funds listed in Asia decreased by 3t (US$147mn, 4.6%)
  • Other regions were virtually flat, falling by 0.1t (US$2.5mn, 0.2%)

Individual flows

  • In North America, SPDR Gold Shares led global outflows, losing 40t (US$1.7bn, 4.8%), while iShares Gold Trust added 7t (US$299mn, 2.4%) followed by SPDR Gold MiniShares adding 3t (US$122mn, 24%)
  • European inflows were led by ETFS EUR Daily Hedged Gold and Invesco Physical Gold, both of which added 2t or ~US$90mn. ETFS Physical Gold, in the UK, had outflows of 3t (US$106mn, 1.5%)
  • In China, Huaan Yifu had significant outflows of 3t (US$121mn, 10%)

Long-term trends

  • Outflows in February halted the upward trend that began in Q3 2018; however, flows remain positive for 2019 with collective inflows of 39t (US$1.7bn, 2%)
  • Total holdings in tonnes (2,479), remain near levels last seen in early 2013, when the price of gold was 23% higher
  • Low-cost ETFs added 20t (US$~800mn) in the past seven months, representing growth of 67%

There was a note to the figures which is worth considering. The WGC calculates gold-backed ETF flows both in ounces/tonnes of gold and in US dollars because these two metrics are relevant in understanding funds’ performance.

As the WGC says, 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 reaches the funds.

“This month, the reported flows measured in tonnes of gold and their dollar value equivalent seem inconsistent across regions,” it noted. “Both figures are correct. The disparity is due to 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.”

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