BackGlobal gold ETFs log second month of outflows, India see minor inflows: WGC
In India, minor net inflows continued in June, primarily driven by market volatility and a depreciating rupee attracting investment into Indian gold ETFs
PremiumGlobal gold exchange-traded funds (ETFs) registered 28 tonnes or $1.7 billion of outflows in June, which the second straight month of selloff, according to a report by the World Gold Council.
In India, minor net inflows continued in June, primarily driven by market volatility and a depreciating rupee attracting investment into Indian gold ETFs. Holdings in other regions were virtually flat month-on-month.
Global gold funds had ended their four-month run of positive inflows in May, with net outflows of 53 tonnes or $3.1 billion, as rising US dollar and higher interest rates weighed on the precious metal.
While the recent flows were enough to push second quater into net outflows of 39 tonnes or $2 billion, year-to-date net inflows remained positive at 234 tonnes or $14.8 billion. Total holdings at the end of June stood at 3,792 tonnes or $221.7 billion, up 6% on a year-to-date (YTD) basis.
North American and European funds were the only regions to see outflows in June. North American holdings fell by 26 tonnes, with outflows dominated by the largest and most liquid US funds.
Intense focus on the future pace of interest rate hikes and a stronger US dollar were the primary headwinds for gold investment. European funds saw more modest outflows of 4 tonnes, concentrated in Switzerland, Germany and France.
On a YTD basis, the picture is one of strength, with all regions except Asia having seen inflows. But it was a tale of two halves.
Gold finished the first half of the year 0.6% higher, closing at $1,817 per ounce. The gold price initially rallied as the Ukraine war unfolded and investors sought high-quality, liquid hedges amid increased geopolitical uncertainty.
But gold gave back some of those early gains as investors shifted their focus to monetary
policy and higher bond yields.
Demand for gold ETFs surged in Q1 to 273 tonnes– the highest level of quarterly inflows since Q3 2020 – propelled by gold price strength, equity market weakness, rapidly rising inflation expectations, and unexpected geopolitical events.
However, this investment partially reversed in Q2, with outflows of 39 tonnes, as interest rate hikes and quantitative tightening came to dominate the narrative.
On the outlook, according to the report, investors around the world face a challenging environment during the second half of 2022, needing to navigate a noxious compound of rising interest rates, high inflation and geopolitical risks.
“In the near term, the gold price will likely remain sensitive to real rates, the speed at which global central banks tighten monetary policy, and their effectiveness in controlling inflation," WGC said in the report.
In terms of demand, the council believes that the challenging environment also has implications for consumer demand for gold over the rest of the year.
“While many markets should continue to benefit from the post-covid recovery, we expect widespread economic slowdown to put pressure on consumer demand for gold, particularly with many markets seeing notably higher local gold prices," it said in the report.
For India, the report said that the demand here is also facing challenges, although to a lesser degree than those in China.
High local inflation, uncertainty about the economic outlook, and the surprise increase of the import duty for gold – aimed in part to mitigate the impacts of rupee weakness – will likely weigh on the recovery of gold consumer demand," it said.
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