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Gold ETFs lost 2 per cent of holdings in February

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Gold-backed ETFs lost 2 per cent AUM (-USD4.6bn/84.7t), marking outflows for the third time in four months, and the seventh worst historical monthly holdings loss, according to new data released today by the World Gold Council. 

Global AUM now stands at 3,681t (USD207 billion), levels last seen in June 2020, when the price of gold was near the February closing level of USD1,743/oz.
 
These outflows were likely driven by price performance as Gold in US dollar terms had its largest monthly decline in four years (-6.5 per cent), finishing at USD1,743/oz. From a performance perspective, this is an unusual start to the year. Over the past two decades, January/February has typically been the strongest two-month period during the year.[1] There is similar seasonality in gold ETF flows; they generally see their strongest inflows during the first quarter of the year.  
 
North American funds accounted for the bulk of outflows, decreasing by USD4.1bn (71.2t / -3.4 per cent AUM). This was mainly driven by the largest funds as low-cost gold ETFs experienced net inflows.

European funds fell by USD1.1 billion (23.8t / -1.1 per cent AUM), primarily from UK funds.

Trading volumes for gold fell 12 per cent, finishing the month at USD166 billion per day, fractionally below the 2020 average of USD183 billion.

Adam Perlaky, Manager, Investment Research, at World Gold Council, says: “Gold’s heightened sensitivity to increasing rates is evident in its current performance. Yet historical data indicates that gold will still perform well if real rates remain below 2 per cent – a threshold that we’re not near breaching if we stay in negative territory.

“As investors increasingly anticipate a  potential new commodities supercyle, we expect gold to follow its track record for lagging other commodities initially to outperform them in the long term.

“While higher rates are a short-term headwind for the gold price because they increase its opportunity cost versus bonds, growing expectations for inflation could partially offset this impact.”
 

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