Global physical gold ETFs[1] saw outflows for the tenth consecutive month, with outflows of around US$823 million in March[2]. However, the outflows in March have narrowed significantly compared to the February outflows (US$2.9 billion) and the average outflows over the past nine months (US$2.4 billion). At end-March, total global holdings in gold-backed ETFs fell by 14t to 3,112t, the lowest level since February 2020 and 21% below the month-end peak of 3,915t in October 2020. However, total assets under management (AUM) rose to US$222 billion, up 8% from the previous month and the highest in 21 months, fueled by surging gold prices[3].
In March, gold-backed ETFs saw inflows in all regions except Europe. Fund flows in North America turned positive for the first time in 2024, while funds from Asia and the "rest of world" also saw inflows. However, these inflows were offset by outflows from Europe.
Figure 1: Global gold-backed ETF outflows narrowed sharply in March
Gold-backed ETF flows and prices by region*
*As of March 31, 2024.
Source: Bloomberg, related company announcements, ICE Benchmarking Authority, World Gold Council
Regional overview
Fund outflows in North America reversed, with inflows of around US$360 million in March, driven by options market activity: a rally in gold prices triggered the exercise of in-the-money call options in mid-March, leading to large inflows into gold-backed ETFs. At the same time, the market saw further inflows into North American gold-backed ETFs around the Fed meeting as yields and the US dollar both weakened[4]. That said, the demand would have been stronger if investors had not dumped funds in early March and when gold prices were rising in late March.
North American fund inflows in March narrowed year-to-date net outflows to $4.3 billion. However, the region still led the world in Q1 in gold-backed ETF outflows, with large and liquid funds seeing the largest outflows. However, the region's total AUM rose to US$112 billion, the highest since June 2022, supported by strong gold prices.
In March, the European regional fund saw its tenth consecutive month of outflows (-$1.4 billion). Despite the dovish tilt of the Bank of England at its March meeting, which led to a decline in government bond yields and a weaker pound, the UK still led the outflows of gold-backed ETFs from European regional funds[5]. Further observation shows that while scattered ETF inflows are evident when gold prices are soaring, there are outflows when gold rallies stall, which may be due to profit-taking by investors. As major central banks such as the European Central Bank and the Swiss National Bank gradually or effectively start cutting interest rates, investors' risk appetite has improved, and interest in gold has waned[6].
Demand for gold-backed ETFs in Germany improved further, with inflows for the first time in five months. As mentioned earlier, deteriorating economic conditions may have pushed up the safe-haven demand of local investors [7].
So far in 2024, cumulative outflows from funds in the European region amount to about $2.9 billion. While total holdings fell to a 51-month low, total AUM rose 6.4% on the back of higher gold prices. Funds from the UK, Switzerland and Germany led Q1 outflows in Europe.
For the thirteenth consecutive month, funds in the Asia region saw inflows of about $217 million. As the rebound in the renminbi gold price attracted investors, China once again led the region in fund inflows. In addition, Japanese gold-backed ETFs also saw inflows. In the first quarter of 2024, funds in Asia led global gold-backed ETF inflows, with cumulative inflows of about US$678 million, a 7% increase in total holdings and a 14% jump in total AUM, while higher gold prices were once again the main driver. In March, "Other Regions" funds saw modest inflows of $23 million, bringing net inflows to $7 million year-to-date.
In March, the global gold market saw an increase in trading volumes
In March, the global gold market rebounded in trading volume, with an average daily trading volume of US$226 million, up 53% month-on-month. Over-the-counter trading volume increased by 28% to US$124 billion per day, with significant growth in value and tonnage in both London and Shanghai gold markets. All major exchanges saw significant increases in trading volume (up 103% month-on-month), led by the New York Mercantile Exchange (COMEX) (+96%) and the Shanghai Futures Exchange (+133%). As the rally in the gold price attracted the attention of tactical traders, trading volume in tonnage also rose sharply. While global gold-backed ETFs continued to outflow this month, trading volumes increased significantly (+39%).
Net long positions in COMEX gold futures surged to 679t to March, up 232t from the previous month and the largest increase in 12 months. At the end of March, net long positions in managed funds increased by 278t to 491t, jumping to the highest month-end value since February 2022. This was mainly due to the surge in the gold price that increased investor participation, which led to a jump in long positions and a sharp decline in short positions[8].
Remark:
[1] We refer to gold-backed ETF funds as regulated securities that hold physical gold, including open-traded funds that trade at regulated exchange rates and other regulated products including closed-end funds and mutual funds.
[2] There are two ways to track the asset data of a gold-backed ETF: one is by the amount of gold held, usually in "tons", and the other is calculated by the US dollar equivalent of the gold held, i.e. AUM. We also monitor the movement of gold-backed ETF fund assets over time by looking at two key indicators, demand and fund flows.
[3] Based on LBMA midday gold price (USD).
[4] For details, see: Fed Meeting Today: March Fed Interest Rate Decision Live Update
[5] For details, see: European Markets Live Update: Fed Reaction and BoE and SNB Decisions
[6] For details, see: Switzerland Becomes First Major Economy to Surprise Rate Cuts
[7] For more information, see: Research institute lowers German GDP growth forecast to 0.1% in 2024 |
[8] Based on net long position as of March 26, 2024.