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107.5 tonnes of gold flowed out of global ETFs in March - World Gold Council

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(Kitco News) - The gold market is starting to attract some new bullish momentum, but the market has a big hill to climb as data shows just how dismal the precious metal market has been since the start of the year.

Rising bond yields and resilient strength in the U.S. dollar took their toll on the gold market last month as investors liquidated their gold-backed exchange-traded funds (ETFs) at an extraordinary pace, according to the latest data from the World Gold Council.

Thursday, the WGC said that 107.5 tonnes of gold, valued at $5.9 billion, flowed out of global ETF products in March. The report noted that the gold market had seen strong outflows in four of the last five months.

"This was also the second month in a row which net outflows ranked the top 10 worst outflows historically," the report said. "Since the peak asset levels in November 2020, gold ETF holdings have fallen nearly 9% in tonnage terms, on part with the approximate loss in the price of gold over the same period."

In an interview with Kitco News, Juan Carlos Artigas, director of investment research at the WGC, said that it is not surprising that the gold market saw strong outflows as expectations have picked up that the U.S. will see a robust recovery from the COVID-19 pandemic.

He added that the tactical investors have been taking profits in the gold market as momentum has slowed compared to last year. However, he added that strategist investors continue to see long-term value in the yellow metal and are providing critical support.

Artigas also noted that investors also need to view the outflows in a broader context as last year saw historic ETF demand.

"It is natural for the gold market to see some outflows as investors continue to take profits from last year's record rally," he said. "This is a natural rebalancing of the gold market."

There are some concerns that the gold ETF market could see a repeat of the massive selloff of 2013, where 36% of ETF holdings were liquidated, causing a roughly 30% drop in the price. However, Artigas said that the WGC does not expect this scenario to emerge in 2021.

Artigas explained that compared to 2013, the gold ETF market is a lot more diverse as holdings have grown across the world. Eight years ago, the gold ETF market was mostly centralized in North American, Artigas noted. But today, the market is nearly evenly split among investors in North America and Europe. He added that Asian investment demand is also seeing steady growth.

Looking at regional ETF demand, North America still plays an important role. The WGC noted that North American listed products saw outflows of 68.5 tonnes. Meanwhile, holdings in Europe fell 45.3 tonnes. Asian markets saw gold holding increase by 7.2 tonnes.

Looking at the first quarter, North American funds saw total outflows of 145.4 tonnes, representing 86% of the market, the WGC said. European funds lost 51.7 tonnes during the quarter, with UK-listed funds accounting for most of the outflows, the analysts added.

Although investment demand for gold has struggled through the first quarter of 2021, Artigas said that they still see a case for gold as a strategic asset in a portfolio. He added that investors shouldn't think of gold in isolation but as one component of their portfolio.

"The full impact of the pandemic is still unknown," he said. "We don't know the unintended consequences from all the stimulus that has been pumped into the global economy. We believethet thte macro-economic environment in 2021 remains supportive for gold."

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