Gold prices are set to see steady and strong growth in 2024, but physical gold demand - reflected in capital flows into ETFs (Exchange Traded Funds) - is uneven, as investors take advantage of major fluctuations to anticipate or lock in profits at record prices.
Data from the World Gold Council (WGC) shows that, among major regions, ETF demand from Asian investors has been the most stable, with the majority of weekly inflow reports recording net increases.
This comes on the back of a weakening yuan and the Chinese property market situation, boosting safe-haven demand for gold.
In contrast, ETF demand in Europe and North America is opportunistic and whimsical, with OECD investors moving in and out of the gold market depending on the movements of interest rates, equity prices and precious metals prices on a weekly basis.
ETF capital flow trends over time
From January to early March 2024, when gold prices consolidated and tended to decline slightly, European and North American funds were the main net sellers, while Asia maintained stable demand. However, when gold started to rise sharply in March, North American ETFs quickly bought heavily, while European funds took advantage to take profits.
Late March to mid-April saw a wave of buying from Asian funds, while Europe remained net sellers and North America stood on the sidelines. When gold reached its second peak above $2,400/ounce in mid-May, North American and European investors again participated heavily, while Asia barely traded, neither selling gold nor buying at record prices.
Summer and fall saw the most active flows into global ETFs, with both North America and Europe adding significant gold holdings, while Asian demand returned as gold prices surged above $2,400 an ounce.
September marked a major turning point as gold prices crossed $2,500/ounce, attracting strong speculative interest from North America, while Asia continued to gain ground. As gold prices stabilized above $2,600/ounce in early October, Asian demand surged with three consecutive weeks of large capital inflows.
The week of the US election saw a return to the pattern from earlier in the year: a sharp drop in gold prices led to North American and some European investors withdrawing funds, while Asian funds continued to buy at lower prices. However, when gold prices fell below $2,600 an ounce in mid-November, European and Asian investors led the largest outflow of 2024, selling nearly 25 tonnes of gold in a single week.
In terms of holdings, despite strong demand from Asia in 2024, the global gold ETF market remains dominated by North American and European funds. Among the top ETFs, unsurprisingly, six of the 10 largest funds and four of the top five are from China, but the fund leading the way in terms of inflows is French. Two UK funds and one US fund are also on the list.
In contrast, North American and European funds dominated the list of funds with the largest outflows, with SPDR Gold Shares leading the declines in terms of value and volume.
Challenges and opportunities for gold ETFs
According to research from State Street Global Advisors, gold ETFs will continue to be the top recommendation among investment advisors in 2024, with 70% recommending gold ETFs and 53% choosing physical gold. However, despite expectations of a Fed easing cycle and record prices, global gold ETFs will end 2024 with net outflows for the fourth consecutive year.
Bloomberg commented: “The US election results in November ended the new recovery momentum of gold ETFs. The stronger US dollar after Donald Trump’s victory caused investors to continue selling, while gold prices fell from record highs as capital flowed into stocks and Bitcoin.”
Additionally, geopolitical risks from conflicts in Ukraine and the Middle East have prompted emerging market central banks and Asian investors to shift to physical gold holdings, reducing demand for gold ETFs.
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