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Global gold exchange-traded funds (ETFs) saw net inflows of 43 tonnes or $3 billion in April, according to a report by the World Gold Council.
While the inflows were 77% lower than the previous month, which was the strongest since February 2016, it was the fourth consecutive month of inflows, maintaining the momentum of flight-to-quality flows we have witnessed this year.
This lifts global holdings to 3,869 tonnes or $238 billion, just 1% below the all-time high of 3,922 tonnes in November 2020.
Gold faced pressure during the month as yields rose sharply – US 10-year real yields briefly turned positive for the first time since 2020 – in response to progressively more hawkish central bank rhetoric, while the US dollar strengthening significantly.
Throughout April, gold remained among the best performing assets in 2022 up 5% in US dollar terms, yet ended the month 1.6% lower at $1,911 per ounce. The last month was marked by significant weakness across most assets, including equities and bonds, as well as heightened market volatility.
Despite gold being under pressure, flows into gold ETFs were undeterred, with almost all regions seeing gains in AUM.
European-listed funds led the way, racking up inflows of 26 tonnes or $2 billion in April, lifting regional assets under management (AUM) to a new record high of 1,692 tonnes or $104 billion.
North American funds saw inflows of 18 tonnes or $1 billion, the vast majority of which were in the larger and more liquid US products.
Asia was the only region to see outflows in the month, with tonnage holdings down fractionally at 1 tonnes or $46 million, almost reversing March inflows. The decline was driven by Chinese gold ETFs, which shed further holdings in line with the broad trend of outflows we have seen to date this year.
Further, gold trading volumes saw a sizeable drop in April, with daily trading averaging $120 billion a day compared to $167 billion a day in March.
As per the market development organization for the gold industry, some of the drivers behind dollar strength could create a headwind for gold in the future.
“A strong dollar can create a headwind for the price of gold as evidenced by its historical negative correlation. However, we believe that if the dollar remains strong, gold’s reaction could be influenced by the drivers behind the dollar rather than its direction alone," the council said in the report.
However, WGC believes that if the dollar’s driver is risk-off sentiment, especially if the war in Ukraine were to extend and have broader implications, both the dollar and gold may move up as they commonly do in these types of environments.
“While some countries like China and India are more dovish about their activity, the overall sense is that central banks may not be there to support markets with the ‘implied put’ that has been in place since the Global Financial Crisis (GFC), which may necessitate portfolio hedges like gold," WGC said.
