Gold ETF Flows: July 2022

Strong gold ETF outflows in July, driven by a weaker gold price and momentum

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July highlights

Global gold ETFs registered outflows of 81t (-US$4.5bn) in July.1 This was the third consecutive month of outflows and the worst since March 2021. A stronger US dollar and COMEX net long positioning – the lowest since April 2019 – helped push the gold price down through the US$1,800/oz support level. Gold finished the month at US$1,753/oz, down 2.8% on the year. For additional information please review our July Global Market Commentary.

Overall, y-t-d global inflows are 153t (US$10.3bn). Despite outflows in recent months, 2022 inflows nearly offset 2021 outflows highlighting continued strategic demand for gold. Total holdings at the end of July stood at 3,708t (US$209bn), up 5% on the year.

All regions except Asia experienced outflows in July. North American holdings led outflows, falling 50.3t (US$2.8bn, 2.5%), driven by the largest and most liquid US funds. The expected, and later confirmed, 75bp rate increase by the Federal Reserve helped propel the dollar index to a 20-year high.2 This, along with a late-month rebound in equities encouraged North American investors – at least tactical ones – to shift into riskier assets. Despite net outflows in the region, the inflows of low-cost gold ETFs in North America continued the monthly trend that we have seen for nearly 90% of the time over the past four years, highlighting continued growth in the space.3

European funds lost 38.1t (-US$2.1bn, 2.2%), led by outflows in UK-based funds. This came on the back of the EU raising rates for the first time in 11 years and by a larger-than-expected amount of 50bp.  Funds in Asia showed a strong bounce in demand (8.1t, US$446mn, 6.0%) 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 Q1. Inflows in July were mainly driven by safe-haven buying, due to a 7% fall in the CSI300 stock index, as well as strategic purchases as the local gold price dipped by 2%. Indian gold ETFs witnessed slight outflows as investors took profits amid a sharp correction in the domestic gold price and the expectation of further weakness. Despite net outflows during the month, India has managed to squeak out y-t-d inflows of almost one tonne.

 

ETF flows chart

Data as of

Sources: Bloomberg, Company Filings, ICE Benchmark Administration, World Gold Council; Disclaimer

Gold trading volumes and futures demand subdued in July

Average daily trading volumes for gold jumped to US$151bn in July, above 2021’s average level of US$131bn. The increase came from the OTC market, and from futures on the COMEX and Shanghai Futures Exchanges. The latest Commitment of Traders (COT) report for Comex showed net long positioning at the lowest levels since April 2019 when the price of gold was US$1,277/oz or about 27% lower. We’ve discussed previously that overly extended bullish or bearish COT numbers can be contra-indicators for the future price of gold. This was the case in April 2019 as the price began its track higher shortly thereafter. Current futures positioning, along with the strong historical performance in the month of August since 2000, could provide an opportune time for establishing or increasing gold positions in the near term.

Regional flows

Outflows in all regions except Asia, with Chinese funds specifically having a strong bounce

  • North American funds saw outflows of 50.3t (-US$2.8bn, 2.5%)
  • European funds fell by 38.1t (-US$2.1bn, 2.2%)
  • Funds listed in Asia added 8.1t (US$446mn, 6.0%)
  • Funds in other regions had outflows of 0.7t (-US$38mn, 1.0%).5

Individual flows

SPDR® Gold Shares and iShares Physical Gold led global outflows during July

  • In North America, SPDR® Gold Shares led outflows, with AUM dropping 44.4t (-US$2.5bn, -4%), while iShares Gold Trust lost 8.9t (-US$497mn, -2%). SPDR® Gold MiniShares Trust saw the largest inflows as holdings rose 4.5t (US$252mn, 5%), followed by iShares Gold Trust Micro which added 1.0t (US$57mn, 6%) -- both of which are in the low-cost space.
  • In Europe, iShares Physical Gold lost 33.5t (-US$1.9bn, 11%) and WisdomTree Physical Gold shed 3.0t (US$167mn, 3%). Invesco Physical Gold was the only fund in Europe with meaningful inflows, adding 4.2t (US$235mn, 2%)
  • In Asia, Chinese ETFs led the way with inflows in Huaan Yifu (3.9t, US$220mn, 15%), Bosera Exchange Traded (3.5t, US$194mn, 21%), and E Fund Gold Tradeable (1.7t, US$94mn, 16%).

Long-term trends

Larger, liquid funds’ flows continue to move with the price of gold, while low-cost funds continue to grow, nearly every month

  • Following three consecutive months of net outflows, global holdings of gold ETFs are now 5% (153t) higher y-t-d, below 2021’s annual inflows of 173t
  • North American- and European-listed funds have absorbed a combined 159t of inflows in 2022 to date
  • Chinese funds started the first half of the year leading outflows but had a resurgence with 15% growth in July.

Footnotes

  1. We calculate gold-backed ETF flows both in ounces/tonnes of gold and in US dollars because these two metrics are relevant in understanding funds’ performance. The change in tonnes gives a direct measure of how holdings evolve, while the dollar value of flows is a finance-industry standard that gives a perspective on how much investment reaches the funds. We have made a few adjustments and improvements to our calculation methodology as of 1 July 2021 that will impact historical and future data. Specifically, we revised the methodology used to estimate changes in gold holdings as described below:

    • Previously, changes in tonnes were calculated by converting a fund’s AUM (in USD) into gold holdings (in tonnes) and computing the difference over periods. However, currency movements and large daily and weekly gold price movements could distort the difference between tonnage change and US-dollar fund flows during short time horizons. We therefore adjusted tonnage change as a function of fund flows versus AUM and replaced the tonnage change field with fund flows (tonnes).
    • Now, for most funds, we estimate US-dollar fund flows, as described in section 2.3.2 below, and then convert those flows to fund flows (tonnes).
    • Fund flows (tonnes) and US-dollar fund flows will now represent a more aligned explanation of investment demand for gold ETFs, while the true holdings of a fund, in US dollars and tonnage, will remain a close estimate, impacted by the currency and price volatility described above.
    • Based on our initial analysis, the changes are not likely to have a material long-term effect on historical information, particularly on a global or regional aggregate basis, but will adjust short-term fluctuations that can sometimes occur due to input data and timing variations.

  2. https://www.forbes.com/advisor/personal-finance/another-75-point-fed-rate-increase/

  3. Low-cost US-based gold-backed ETFs are defined by the World Gold Council as exchange-traded open-ended funds listed in the US and Europe, backed by physical gold, with annual management fees and other expenses like FX costs of 20bps or less. At present, these include Aberdeen Physical Swiss Gold Shares, SPDR® Gold MiniShares, Graniteshares Gold Trust, Goldman Sachs Physical Gold ETF, iShares Gold Trust Micro, CI Gold Bullion Fund, WisdomTree Core Physical Gold, and Xtrackers IE Physical Gold ETC.

  4. https://www.cnbc.com/2022/07/21/european-central-bank-raises-rates-by-50-basis-points-its-first-hike-in-11-years.html

  5. ‘Other’ regions include Australia, South Africa, Turkey, Saudi Arabia, and the United Arab Emirates.