In the face of higher bond yields and a surge in inflation expectations, gold rallied 1.5 per cent in October according to new data released today by the World Gold Council.
Though gold-backed ETFs experienced net outflows of USD1.4 billion and global gold-backed ETF AUM hit year-to-date low levels of USD203 billion, vaulted physical holdings and bar and coin markets point toward a strong investment appetite long-term.
Low-cost ETFs reversed course after three months of positive momentum, experiencing USD133 million in outflows. Despite the decline in October, low-cost ETFs have grown by approximately 41 per cent year-to-date and still represent approximately 6 per cent of the global gold ETF market. Gold daily trading averages saw marginal gains, increasing to USD151 billion per day and progressing toward the year-to-date average of USD159 billion.
North American funds: declined by USD817 million (0.80 per cent AUM), driven by US funds that were likely impacted by options market activity around expiry in mid-October.
European funds: declined USD703 million (0.80 per cent AUM) with funds in the UK and France leading outflows, likely due to expectations of increased interest rates before the end of 2022 brought on by inflation.
Asian funds: up USD74 million (0.95 per cent AUM), notching record highs amid struggling local equity market performance.
Adam Perlaky, Senior Analyst, at World Gold Council says: “North America and Europe experienced nearly identical ETF outflows this month, which outweighed record inflows in Asia. Those outflows are primarily a result of central bank policy. While the US Federal Reserve began tapering bond purchases this month, it had limited influence on gold. Meanwhile, despite the European Central Bank’s pledge against interest rate hikes, investors appeared to react to decades-high inflation.
“In recent years, gold has been inversely correlated with nominal interest rates, and yet gold strengthened during the month despite higher nominal rates. This is likely a result of rising inflation expectations, though changes in the relative move in interest rates may have had an impact. Ultimately, gold’s move higher could be attributed to investors pricing in future rate hikes, which is especially relevant given Fed Chairman Powell’s commentary this week. Though higher rates could be a headwind for gold, broader concerns of inflation and a potential recession highlights gold’s value as an effective portfolio hedge.”