Gold ETF Flows: December 2023

Highlights

• Outflows from global gold ETFs continued in December as European losses overshadowed inflows into North America and other regions
• While the gold price performance and a dovish Fed supported North American inflows, stronger currencies and hawkish local central bank stances deterred European gold investors
• December widened 2023’s global gold ETF losses to US$15bn, the third consecutive annual outflow, mainly from European and North American funds, while Asia was the only region that captured inflows in 2023
• Collective holdings fell by 7% in 2023 but total assets under management (AUM) rose 6% thanks to a 15% gold price gain. 

December in review

Global physically backed gold ETFs¹  witnessed net outflows of US$1bn in December, marking their seventh consecutive monthly loss.²  Collective holdings stood at 3,225t at the end of 2023, a 10t decrease in December. Benefiting from continued strength in the gold price (+2% m/m), total AUM rose by 1% during the month, to US$214bn.³

December regional overview

North American funds attracted US$717mn in December; the second successive month of inflows. The US Fed kept rates unchanged for the third straight meeting and signalled rate cuts of 75bps in 2024, more dovish than previously projected. As a result, opportunity costs of holding gold, proxied by the 10-year US Treasury yield (-45bps) and the dollar (-2%), fell in the month, pushing up the gold price and attracting gold ETF inflows. The gold price reached an record high in December⁴ and this, together with continued geopolitical concerns, also lifted investor interest – in the US, Google Trends saw rocketing searches on “gold price” related topics. Major gold ETF options that expired on 15 December also contributed positively as the price jump ahead of the expiry date triggered exercises of in-the-money calls and created inflows.⁵ 

European funds witnessed outflows of US$2bn, extending their losing streak to seven months. Although the European Central Bank and the Bank of England continued to leave rates unchanged, they maintained their hawkish attitude and pushed back expectations of rate cuts in the near future.⁶  Consequently, local investors remained cautious about gold investment amid elevated interest rates, still-hawkish central banks and strengthening currencies. And other factors such as softer local gold price performances relative to their US peer and rallies in equities may have further dimmed investor interest during the month. The largest outflows came from funds listed in the UK and Germany. 

Asian funds attracted inflows of US$208mn in December for the ninth consecutive month. These were led by China (+US$140mn) and Japan (+US$64mn). Economic and geopolitical uncertainties, as well as local gold prices refreshing all-time highs, increased gold’s allure in these markets.⁷  The Other region also ended the month positively (+US$33mn) as Turkish inflows, which reached a seven-month high, outweighed outflows from Australia.⁸ 

2023 in review

2023 marked global gold ETFs’ third consecutive annual outflow despite a 15% gold price rise, shedding US$15bn.⁹  Europe lost the most and North America also experienced sizable outflows. Asia, on the other hand, was the only region that attracted inflows, while the Other region witnessed mild outflows. 

European combined outflows in 2023 amounted to US$11bn, the worst year since 2013 (-US$13bn). The region’s inflows, mainly in March, were aided by systemic risk fears in response to the mini-banking sector crisis and alluring local gold price performances. Outflows during most of the year (-US$13bn) were driven by the region’s rocketing interest rates, the hawkish stance of local central banks, strong currencies and rising living costs which, among other factors, may have led to profit taking.

North American funds lost US$4bn in 2023. Outflows (-US$10bn) were mainly associated with gold price weakness and surging opportunity costs including higher Treasury yields and a stronger dollar. They were partially offset by inflows during most of H1 – supported by strong gold price rises and safe-haven demand amid the banking sector turmoil – and towards the end of the year when yields and the dollar weakened on intensifying rate cut expectations.

Asia attracted inflows of US$1bn in 2023, the only area registering positive gold ETF demand. China, Japan and India contributed the most. Global geopolitical tensions, local economic uncertainties as well as the eye-catching performances of gold in different currencies fuelled positive gold ETF demand in these markets during the year. The Other region saw a mild annual loss of US$70mn. Outflows from Australia and South Africa wiped out Turkish inflows amid rampant inflationary pressure, the weakening local currency and various other concerns.

Trading volumes rose significantly in 2023

Daily gold market trading volumes around the globe averaged US$152bn in December, 13% lower m/m. While gold ETF volumes (+17%) increased, OTC transactions (-10%) and exchange-traded derivative activities (-18%) fell.

In 2023, gold trading volumes surged by 24% compared to the 2022 daily average. This was chiefly supported by notably higher trading activities at the OTC physical gold market (+27%) and major exchanges (+19%). Meanwhile, trading at the global gold ETF market was relatively lighter (-13%).

Net long positioning on COMEX reached 677t during the last week of 2023, 3% higher m/m and a 42% jump compared to the end-2022 level (476t). Money manager net longs saw similar strength, reaching 421t by the end of 2023 and doubling y/y. These changes reflect investors’ improved expectations of the gold price amid shifting macro drivers such as lowering Treasury yields and the dollar.