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Gold market sees inflows into ETF for first time in four months - WGC

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(Kitco News) - U.S. inflation hitting its highest level in 31 years drove investors, looking for an inflation hedge, into the gold market last month. However, the momentum didn't last as prices have been unable to hold above $1,800, according to the latest data from the World Gold Council.

In its latest market report, the WGC said that global gold-backed exchange-traded products saw inflows totaling 13.6 tonnes in November. This was the first month of inflows the gold ETF market has seen since July.

"Both North American and European gold ETFs contributed to November's inflows, a reversal from the headwinds faced by larger funds in these regions for much of this year," analysts said in the report.

However, despite the rise in ETF demand last month, the WGC described gold's price action as neutral, rising 2% in the month.

"Gold remains more than 4% lower on the year as a sustained rally in prices failed to materialize given monetary headwinds and consistent dollar strength, particularly since June," the analysts said in the report.

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"Gold ended the month 2% higher, as inflation expectations rose to their highest level since 2005 in the first half of November. Returns were ultimately offset, as a crash in oil prices and rising concerns around the COVID Omicron variant led to U.S. dollar outperformance," added Adam Perlaky, senior analyst, at the WGC, in an emailed statement.

The WGC noted that while rising inflation is supportive for the gold market, the prices pressures are being met with hawkish comments from the Federal Reserve.

Looking at a regional breakdown of ETF flows in the gold market. The report said North American-listed funds saw their holdings increase by 12.1 tonnes last month. Meanwhile, European-listed funds saw inflows of 5.6 tonnes. Asian ETFs saw outflows of 5 tonnes.

"Year-to-date, gold ETFs have seen global outflows of US$8.8bn (-167t) as large North American and some European funds have lost assets in line with fluctuating gold prices," the analysts said.

Looking forward, the WGC said that inflation and U.S. interest rates will remain the two dominant drivers for precious metal.

"We believe that many of the factors which have driven gold this year will remain important in 2022: the pace and direction of inflation and rates, COVID, and the resilience of global economic growth. Uncertainty will likely continue to provide a level of support for gold investment as a hedge," WGC analysts said.

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