Lending Association

Gold soars despite investor exodus from metal-backed ETFs

Despite gold hitting a series of record highs last week, the precious metal is doing it without the support of most investors, as the outflow of metal from metal-backed Exchange Trading Funds (ETFs) continued in February.

Despite that outflow, the price of the metal remained mostly solid through the month except for a small dip, helped by more central bank buying, though not as much as normal from China.

But the start of a new month has seen an upsurge in gold prices, and Friday saw the April futures price on Comex end around $US2,186 an ounce, up 4.5% for the week and accounting for most of the 5.5% gain for the year to date. Spot gold ended the week around $US2,177 an ounce.

Analysts said a benign inflation reading this week in America for February could see prices top the $US2,200 level.

But World Gold Council data shows that February was definitely an odd month with big outflows except in Asia.

“North American funds lost the most while outflows from Europe narrowed. In contrast, Asia has now seen net inflows for 12 consecutive months, and other regions have seen only limited loss,” according to the monthly report from the World Gold Council (WGC).

The outflow was the 9th monthly loss for ETFs in a row with the loss more obvious from funds in the US and Europe, while funds in Asia went against the trend and grew last month.

The Council said that when combined with the 0.3% fall in the price of gold in February (since more than reversed) total assets under management in gold-backed ETFs fell 1.8% from January to $US206 billion, the lowest since last September.

In turn, collective holdings of global gold ETFs lost 49 tonnes to 3,126 tonnes, 20% lower than their month-end record of 3,915 tonnes in October 2020 (at the end of the first year of the pandemic).

March’s big price rise (so far) should see the value of holdings rise in the next monthly report.

The WGC said that the last time global gold ETFs experienced a similar decline was between May 2022 and February 2023 when outflows lasted for ten months.

“Nonetheless, the two recent rounds of sustained outflows had little negative impact on the gold price performance, which was supported by resilient consumer demand and blistering central bank purchases,” the WGC noted.

Gold prices rose more than 4% last week as futures prices headed towards $US2,200 an ounce, and the Australian dollar remained above $US3,200 an ounce (the full rise was clipped by a rise in the value of the Australian currency Thursday and Friday).

The Council said North American funds have experienced outflows for two consecutive months, shedding $US$2.4 billion in February.

“During the first two months of 2024, North American funds lost $US4.7bn, the second-worst start to a year ever, ranking only after 2013 (-$US5bn). Following February’s decline, their collective holdings fell to the lowest in four years.”

Europe also saw outflows, though smaller than North America at a fall of $US719 million.

“The contraction in recent outflows was mainly driven by Germany, where worsening economic conditions and other uncertainties may be turning the bearish tide towards gold. European funds have lost $US1.5 billion so far in 2024, dragging their total AUM to a five-month low. Meanwhile, their holdings dropped to the lowest since February 2020. UK and Germany led the region’s outflows.

But Asia saw its twelfth consecutive monthly inflow in February, attracting $US200 million.

“China accounted for the bulk of Asian inflows as investor interest in gold persisted amid the weakening local currency and a stable RMB gold price. Over the past 12 months, inflows into Asian funds add up to $US2 billion, a stunning 41% rise in total AUM. Fund flows in the Other region were limited, losing $US24 million during the month, mainly from Turkey.,” according to the Council.

January data on visible central bank purchases saw 39 tonnes added. That was more than double the revised 17-tonne figure in December and the 8th monthly gain in a row.

Turkey and China again led the charge among buyers, while significant sales were virtually non-existent. Turkey bought 12 tonnes, lifting total gold holdings to 552 tonnes, just 6% off the all-time high of 587 tonnes back a year ago.

The usual big buyer, China saw the People’s Bank lift its holding by 10 tonnes to 2,245 tonnes (it was the 15th monthly purchase in a row). And the Reserve Bank of India added nearly 9 tonnes, taking its total holdings to 812 tonnes, the largest since mid-2022.