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July was worst month for gold ETFs since March 2021

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(Kitco News) - July was the worst month for outflows in global gold-backed exchange-traded funds since March of 2021, as 81 tonnes of the precious metal left the market, according to the latest report from the World Gold Council.

“Significant outflows from global gold ETFs and a decline in gold futures positioning, which reached net short for only the fifth time since 2006, weighed on gold’s performance throughout July. Gold also faced headwinds in the form of a stronger US dollar, weaker Brent crude prices following softer growth data and lower implied volatility,” said Adam Perlaky, senior analyst at the WGC, in the report.

However, the WGC also noted that the market could be on the cusp of turning around as sentiment was significantly bearish by the end of the month.

In its monthly ETF update, the WGC said the gold market saw broad-based outflows in North American and European markets. North America-listed funds saw 50.3 tonnes of gold flee the marketplace.

However, one trend in North America remains strong. The WGC noted that demand for low-cost ETFs saw inflows.

Meanwhile, European funds saw outflows of 38.1 tonnes.

“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 50 [basis points],” the analysts said. 

Bucking the current trend, Asian-listed funds saw inflows of 8.1 tonnes.

“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,” the analysts said.

The gold market has seen three consecutive months of outflows. However, the WGC said demand remains solid after a strong first half-year performance. Total global holdings are up 5% so far this year.

“Despite outflows in recent months, 2022 inflows nearly offset 2021 outflows highlighting continued strategic demand for gold,” the analysts said.

The WGC also remains optimistic that demand could pick up through August as bearish sentiment appears to be peaking.

“Looking forward, expectations of less hawkish US monetary policy and high investor cash allocations may weaken the dollar, resulting in a sustainable recovery in equities and commodities. An analysis of gold futures positioning also suggests that gold could rebound in the near term. While it is rare for gold futures to reach a net short, they have historically been associated with positive gold returns going forward,” Perlaky said.

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