Gold ETFs record $4.5bn outflows in July on a strong dollar and softer inflation outlook

North American and European funds accounted for majority of the outflows, while gold holdings in China increased, World Gold Council says

July was the third consecutive month of outflows from global gold exchange-traded funds. EPA
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Global gold-backed exchange-traded funds (ETFs) recorded net outflows of $4.5 billion in July as continued US dollar strength and softer inflation expectations weighed on investment activity, the World Gold Council has said.

North American and European funds accounted for major share of the outflows while gold holdings in China increased, the trade body said in a report.

Though this was the third consecutive month of outflows from global gold ETFs and the largest monthly outflow since March 2021, total holdings remain 5 per cent higher so far this year, at 3,708 tonnes worth $209bn, the WGC said.

“Significant outflows from global gold ETFs and a decline in gold futures positioning, which reached net short for only the fifth time since 2006, weighed on gold’s performance throughout July,” said Adam Perlaky, senior analyst at the WGC.

“Gold also faced headwinds in the form of a stronger US dollar, weaker Brent crude prices following softer growth data and lower implied volatility.”

Geopolitical and economic uncertainty is mounting around the globe after Russia’s military offensive against Ukraine, with inflation also rising due to higher commodity prices and supply chain disruptions.

The price of gold averaged $1,871 an ounce in the second quarter, up 3 per cent compared with the same period last year.

However, it was 5 per cent lower on a quarterly basis. Gold was trading 1.02 per cent lower at $1,744.08 an ounce at 10.11am UAE time on Monday.

Gold ETFs recorded outflows of 39 tonnes in the second quarter, partially offsetting the strong inflow gains of 269 tonnes in the January-March period, according to a WGC report last month.

Net inflows in the first half totalled 234 tonnes, compared with 127 tonnes of outflows during the same period last year, the trade body said.

Global gold ETFs have recorded inflows of 153 tonnes worth $10.3bn so far this year, the WGC said.

“Despite outflows in recent months, 2022 inflows nearly offset 2021 outflows highlighting continued strategic demand for gold,” the report said.

All regions except Asia experienced outflows from gold-backed ETFs in July. North American holdings accounted for the majority of gold-backed ETF outflows, falling by 50.3 tonnes worth $2.8bn.

“This was driven by the largest and most liquid US funds. The 75 basis point rate increase by the Federal Reserve helped propel the dollar index to a 20-year high,” the report said.

“This, along with a late-month rebound in equities encouraged North American investors — at least tactical ones — to shift into riskier assets.”

European gold ETFs recorded outflows of 38 tonnes worth $2.1bn in July, led by outflows in UK-based funds, after the EU raised rates for the first time in 11 years.

On the other hand, gold ETFs in Asia attracted inflows of 8.1 tonnes valued at $446 million after a “blistering first half of outflows”.

“All the inflows came from China, which had the worst absolute outflows during the first half of the year, primarily due to profit taking amid a strong local gold price in the first quarter,” the research showed.

“Inflows in July were mainly driven by safe haven buying, due to a 7 per cent fall in the CSI300 stock index, as well as strategic purchases as the local gold price dipped by 2 per cent.”

There were small outflows in Indian gold ETFs as investors booked profits amid a sharp correction in the domestic gold price and expectations of further weakness.

Despite net outflows during the month, India managed to register inflows of about one tonne this year, the WGC said.

Average daily trading volumes for gold jumped to $151bn in July, above the average 2021 level of $131bn.

The increase came from the over-the-counter market and from futures on the Comex and Shanghai Futures Exchanges, the trade body said.

Updated: August 08, 2022, 9:10 AM