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Gold ETF investment demand improved in April, but the market remains negative year-to-date

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(Kitco News) - Investment demand in the gold market continued to improve in April; however, the sector still has a hill to climb to undo the significant selling pressure seen last year and in the early months of 2023, according to the latest data from the World Gold Council.

Wednesday, the WGC said that global gold-backed exchange-traded products saw inflows of 15 tonnes in April, valued at $824 million. This is the second consecutive month the ETF market has seen inflows; however, year-to-date, the report said that the market remains down by 13 tonnes due to heavy outflows in Europe in January and February.

The WGC said that investment demand in North America continues to lead the global marketplace. North American funds saw inflows of 15 tonnes last month, valued at $984 million.

"Weaker-than-expected economic data worsened investors' recession fears, suppressing Treasury yields and lifting safe-haven demand for gold. The positive gold price performance during the month may have also contributed," the analysts said in the report.

Across the Atlantic, European-based funds saw outflows of 0.7 tonnes, valued at $223 million.

"With the region's core inflation remaining stubbornly high and financial markets sharing banking sector woes, investors anticipate further rate hikes from local central banks, and this may have lessened their interest in gold ETFs," the analysts said.

Asian-listed funds saw modest inflows of 0.1 tonnes, worth $49 million.

One significant surprise highlighted in the April report was one tonne of inflows in Turkey.

"Political uncertainties, continued currency weakness and elevated inflation sustained Turkish investors' interest in gold ETFs," the analysts said.

Looking ahead, the WGC expects to see solid investment demand through 2023 as recession fears continue to grow, which could weigh on equity markets.

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The analysts noted that gold needs a catalyst as it tiptoes around all-time highs above $2,080 an ounce. June gold futures last traded at $2,036 and ounce, down 0.38% on the day.

"An equity sell-off, however, could be that catalyst. Excess savings, accumulated through lower spending and large fiscal transfers since 2020, look to be dwindling. While these savings have been a possible driver of both high inflation and strong margins for equities, their potential depletion could also be equities' undoing. Should that transpire, gold has a history of responding well to sharp equity sell offs. But the extent of that response varies," WGC analysts said in a septate report also published Wednesday.

"We find that alongside a decent fall in real yields and the US dollar, the prior level of real yields and gold's performance leading up to the equity sell-off also have some sway. As it currently stands, these two factors historically point to a good rather than a poor response to an equity sell-off," the analysts added.

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