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Gold-backed ETFs recorded net outflows in August

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According to new data released by the World Gold Council, global gold-backed ETFs recorded net outflows of USD2.9 billion in August, as a two-decade high in the US dollar and higher rates again proved to be headwinds for gold price.

While total gold ETF holdings remain 3.6 per cent (USD202 billion) higher on the year, with the fourth consecutive month of outflows, funds have now given back two-thirds of the inflows that were accumulated through April.

Gold finished the month down 2 per cent (USD1,716/oz) and 5 per cent lower on the year. WGC writes that declines can largely be attributed to hawkish commentary from US Fed officials, which drove two-year rates to levels last seen during the Global Financial Crisis. Simultaneously larger, liquid funds’ flows continued to mirror gold price movements and North American funds led outflows, falling 2.1 per cent (USD2.2 billion).

Meanwhile, as is common in the summer months, gold average daily trading volumes fell dramatically to USD109 billion, the WGC says.

Commenting on today’s data, Adam Perlaky, Senior Analyst at World Gold Council, says: “Gold-backed ETF outflows were widespread in August, as North America, Europe and Asia all saw capital pulled out of funds, even in the low-cost space. US funds particularly faced headwinds, as flows among the largest and most liquid funds were correlated with gold price movements, amid a period where the Fed pushed rates to levels last seen during the Global Financial Crisis and the dollar reached highs that we have not observed for nearly 20 years.

“Evaluating the environment holistically, gold-backed ETFs remain 3.6 per cent higher on the year, despite losing nearly 66 per cent of the inflows registered from January through April. It is not unusual to see gold trading averages decline during the summer months and, looking forward, we expect that rates will come down from historic levels. If that is the case, we expect that will serve as a tailwind for both the gold price and inflows into major North American funds. At the same time, risks of a recessionary environment bring gold’s role as a store of value and downside protection tool into focus, as it has historically been one of the best-performing assets amid those market conditions.”

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