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Gold ETFs see the ninth straight month of outflows, but the trend is reversing - World Gold Council

Kitco News

(Kitco News) -Global gold-backed exchange-traded funds continued to struggle in January even as the precious metal saw its best start to the year in a decade, with prices rising more than 6%, according to monthly data from the World Gold Council.

This is the ninth consecutive month gold investors have liquidated their ETF holdings.

Thursday, the WGC said 26 tonnes of gold, valued at $1.6 billion, flowed out of ETFs last month. The report said outflows in Europe and Asia outweighed inflows into North American funds. January bucked the trend seen through most of 2022; last year, North American funds saw the biggest outflows.

"North American funds likely benefited from gold's strong price performance as the dollar weakened and interest rates stabilized," the analysts said.

The analysts said that North American-based ETF saw inflows of 9 tonnes, valued at $572 million; however, this was dwarfed by the liquidation seen in Europe as those funds saw their gold holdings drop by 33 tonnes, valued at $2.1 billion.

"Rising rates as European central banks catch up to the Fed, currency appreciation and strong local stock market performances may have diverted investors' attention away from gold ETFs," the analysts said.

Meanwhile, Asian-listed funds saw outflows of 3 tonnes, worth about $200 million.

Analysts have noted that gold's 20% rally since its November two-year lows was looking precarious as ETF markets have seen lackluster interest. However, analysts at the World Gold Council said that there are signs that the market is starting to shift and could create a sustainable rally.

The WGC noted that although investors have basically stayed away from gold-backed ETFs, they have increased their bullish speculative positioning in the futures market.

"It is not merely a short covering. Long positioning has been as active as previously, suggesting a buy-in to gold's tactical case. And short positions remain, signalling an uncrowded trade," the analysts said. "While European outflows have masked nascent North American inflows, our analysis suggests that futures historically lead ETFs which could entice a more sustained rally."

WGC says central bank gold demand hit an all-time high in 2022

The WGC also noted that despite weak ETF interest, there is growing investment activity and rising volume in the marketplace.

"I believe recent gold market activity could signal renewed investor interest, as gold's average daily trading volumes increased 35% month-over-month in January and average daily trading volumes of exchange-traded gold derivatives jumped even higher, by 58%, over the course of the month," said Juan Carlos Artigas, Global Head of Research at World Gold Council, in a prepared statement.

One significant factor that is breathing new life into the gold market is the massive central bank appetite for gold. The WGC recently reported that central bank gold demand hit an all-time high last year as 1,136 tonnes were added to global foreign reserves. Of that, more than 800 tonnes of gold was bought in the second half of last year.

The WGC's optimistic outlook comes as gold prices saw a significant correction in February, with prices holding below $1,900 an ounce. April gold futures last traded at $1,889.60 an ounce.

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