Gold ETF demand drops for fourth straight month as prices eke out small gains in October
(Kitco News) -The gold market is holding on to gains at a two-month high and is within striking distance of retesting a major resistance point. Despite the latest rally, some market analysts have noted that the precious metal faces anemic investor interest.
Friday, the World Gold Council released its latest snapshot of the global holding of gold-backed exchange-traded products. For the fourth consecutive month, investors liquidated their positions in gold-backed ETFs. The report said that gold-backed ETFs saw outflows of 25.5 tonnes, with broad-based declines among North American and European-listed funds.
"Global gold ETF holdings fell to 3,567 tonnes (US$203bn) during the month - notching year-to-date low levels - as investor appetite for gold diminished in the ETF space following price declines in August and September," the analysts said in the report.
Looking at a regional breakdown, North American funds saw combined outflows of 14.7 tonnes; at the same time, 12 tonnes of gold flowed out of European-based funds, with the U.K. and French firms seeing most of the liquidation.
While Western investors continued to flee the gold market, the WGC noted that Eastern nations saw further interest in paper gold products. Asian listed funds reported inflows of 1.3 tonnes last month.
Although investors continued to shun gold ETFs, the precious metal managed to eke out a modest gain for the month, rising 1.5%. WGC analysts noted that the gold market found some support as inflation pressures picked up even as interest rate expectations continued to grow.
"Our monthly return attribution model suggests that gold 's recovery in October was driven by a rise in inflation expectations indicated by breakeven rates outweighing the concurrent increase in nominal interest rate yields. This led to a decline in U.S. real yields, which briefly hit their lowest levels since early August, while the dollar depreciated accordingly, particularly against energy-led commodity currencies," the analysts said in the report. "U.S. inflation expectations rose to their highest point in eight years as both Brent and WTI oil prices surged above US$80/barrel for the first time since 2014 amid global energy shortages and heightened winter demand in Europe and North America."
While global ETFs have seen outflows in six out of the ten months of 2021, the report did note one highlight. Low-cost ETFs continue to attract strategist investments.
"Despite a weaker October, low-cost ETFs continue to post inflows regardless of price conditions, growing by almost 41% y-t-d (57.7t), and constitute close to 6% of the total global gold ETF market," the analysts said.
Although investment demand for paper gold products remains lackluster, Juan Carlos Artigas, head of research at the WGC, said in a recent interview with Kitco News that the outflows should be put into context. The weak investment demand this year comes on the back of record demand in 2020. Last year more ETF holding grew by more than 877.1 tonnes. So far this year, the investors have liquidated 347.90 tonnes.
"There are still a lot of investors who increased their allocation to gold and are holding steady," he said.
Artigas added that instead of paper gold, the WGC is seeing renewed demand for physical bullion as investors take advantage of low prices and premiums to build long-term strategic positions.
By Neils ChristensenFor Kitco News
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