(Kitco News) – Gold-backed exchange-traded products are showing signs of life as they attracted some attention from North American investors last month, even as European markets continued to see significant outflows, according to the latest data from the World Gold Council (WGC).
The WGC released its latest report on monthly ETF flows on Tuesday, which showed that global outflows dropped to their slowest rate since February 2020 and are 21% lower than the month-end record of 3,915t in October.
The analysts noted that North American-listed funds saw holdings actually increase by 4.8 tonnes, valued at $360 million.
“Inflows were mainly driven by activities in the options market: the gold price rally triggered exercises of in-the-money calls in mid-March, creating sizable inflows,” the analysts said. “Demand would have been stronger if investors didn’t sell their holdings in early and late March, taking advantage of gold price advancements.”
At the same time, Asia-listed funds saw their 13th consecutive month of inflows as holdings increased by 3.1 tonnes, valued at $217 million.
“China once again led inflows as the local gold price rally attracted investors,” the WGC wrote. “Japan also recorded positive flows.”
However, solid growth in Asia and North America was unable to offset the strong selling pressure seen in Europe. The report noted that European-listed funds have seen their gold holdings drop for ten consecutive months. In March, holdings fell by 22 tonnes, valued at $1.42 billion.
“The UK accounted for the bulk of the loss despite the Bank of England’s dovish tilt in its March meeting, which led to lower government bond yields and a weaker pound,” the analysts said. “Taking a closer look, although scattered inflows were evident when the gold price surged, outflows emerged when gold’s momentum paused – likely due to profit-taking activities. And as major central banks – including the European Central Bank and the Swiss National Bank – edged towards or actually started rate cuts, investor risk appetite improved and interest in gold diminished.”
Although the gold market has attracted some North American investors, the gold-backed ETF market is in a deep hole as holdings are still down by 68.2 tonnes this year, valued at $4.3 billion.
However, ETF flows proved to be a secondary factor within the broader gold market as prices finished the month 8% higher. The WGC said that the gold market remains well supported by strong fundamental demand.
“The fundamentals underpinning the current rally include growing geopolitical risk, steady central bank buying, and resilient demand for jewellery and bars and coins,” said the WGC.
Even as gold prices have continued their unprecedented rally into record territory, the WGC analysts said there is still considerable potential in the precious metal. Looking at broader metrics, they said gold is still under-owned in the market.
“With gold reaching all-time highs, the default assumption for most would be that positioning is likely crowded, as it appeared to be in 2011, for example, but that is not the case,” the analysts said. “When assessing gold ETFs as a percentage of total US ETF AUM we found their percentage share is at the fourth lowest level since inception. Similarly, we have found that open interest in the futures market resembles trends that we see across the ETF space; gold’s open interest is well below that of a set of futures across equities, bonds and commodities.”
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