Global gold ETF outflows continued across most regions in November, making 2023 the third consecutive year of global net outflows, according to the latest data from analysts at the World Gold Council (WGC) published Tuesday.
“Global physically backed gold ETFs witnessed net outflows of US$1bn in December, marking their seventh consecutive monthly loss,” the WGC fund flows and holdings report noted. “Collective holdings stood at 3,225t at the end of 2023, a 10t decrease in December. Benefiting from continued strength in the gold price (+2% m/m), total AUM rose by 1% during the month, to US$214bn.”
North American funds increased their holdings by $717 million in December, the region’s second consecutive month of inflows. “The US Fed kept rates unchanged for the third straight meeting and signalled rate cuts of 75bps in 2024, more dovish than previously projected,” the WGC noted. “As a result, opportunity costs of holding gold, proxied by the 10-year US Treasury yield (-45bps) and the dollar (-2%), fell in the month, pushing up the gold price and attracting gold ETF inflows.”
December’s record-high gold prices coupled with ongoing geopolitical concerns boosted investor interest. “[I]n the US, Google Trends saw rocketing searches on ‘gold price’ related topics,” they said. “Major gold ETF options that expired on 15 December also contributed positively as the price jump ahead of the expiry date triggered exercises of in-the-money calls and created inflows.”
Across the pond, Europe stretched its streak of consecutive net outflows to seven months, liquidating $2 billion worth of gold holdings in December. “Although the European Central Bank and the Bank of England continued to leave rates unchanged, they maintained their hawkish attitude and pushed back expectations of rate cuts in the near future,” the report noted. “Consequently, local investors remained cautious about gold investment amid elevated interest rates, still-hawkish central banks and strengthening currencies.”
The Council said that other factors, including softer local gold price performances compared to the U.S. market and equity rallies “further dimmed investor interest during the month,” with the largest outflows in the region coming from funds listed in the UK and Germany.
Asian funds continued to increase their holdings, attracting $208 million in inflows in December to post their ninth consecutive month of gains, led by China ($140 million) and Japan ($64 million).
“Economic and geopolitical uncertainties, as well as local gold prices refreshing all-time highs, increased gold’s allure in these markets,” the report noted. “The Other region also ended the month positively (+US$33mn) as Turkish inflows, which reached a seven-month high, outweighed outflows from Australia.”
Gold-backed ETFs and similar products account for a significant part of the gold market, with institutional and individual investors using them to implement many of their investment strategies. Flows in ETFs often highlight short-term and long-term opinions and desires to hold gold.
The data in the report tracks gold held in physical form by open-ended ETFs and other products such as closed-end funds, and mutual funds. Most funds included in the dataset are fully backed by physical gold.
The December report also provided an overview of global and regional fund flows for the full calendar year.
“2023 marked global gold ETFs’ third consecutive annual outflow despite a 15% gold price rise, shedding US$15bn,” the WCG said. “Europe lost the most and North America also experienced sizable outflows. Asia, on the other hand, was the only region that attracted inflows, while the Other region witnessed mild outflows.”
Total European outflows in 2023 were $11 billion, the worst year for the region since the $13 billion in outflows posted in 2013. “The region’s inflows, mainly in March, were aided by systemic risk fears in response to the mini-banking sector crisis and alluring local gold price performances,” they said, adding that outflows “were driven by the region’s rocketing interest rates, the hawkish stance of local central banks, strong currencies and rising living costs which, among other factors, may have led to profit taking.”
North American funds shed a net $4 billion in gold over the course of 2023. “Outflows (-US$10bn) were mainly associated with gold price weakness and surging opportunity costs including higher Treasury yields and a stronger dollar,” the analysts said. “They were partially offset by inflows during most of H1 – supported by strong gold price rises and safe-haven demand amid the banking sector turmoil – and towards the end of the year when yields and the dollar weakened on intensifying rate cut expectations.”
Asia was the only region to register positive gold ETF demand on the year, with China, Japan and India contributing to net inflows totaling $1 billion in 2023. “Global geopolitical tensions, local economic uncertainties as well as the eye-catching performances of gold in different currencies fuelled positive gold ETF demand in these markets during the year,” the WGC wrote.
The Other region saw a relatively small annual outflow of $70 million. “Outflows from Australia and South Africa wiped out Turkish inflows amid rampant inflationary pressure, the weakening local currency and various other concerns,” they said.
The World Gold Council also noted that while trading volumes fell last month, they rose significantly over the course of 2023.
“Daily gold market trading volumes around the globe averaged US$152bn in December, 13% lower m/m,” the analysts said. “While gold ETF volumes (+17%) increased, OTC transactions (-10%) and exchange-traded derivative activities (-18%) fell.”
On an annual basis, gold trading volumes “surged by 24% compared to the 2022 daily average,” they said. “This was chiefly supported by notably higher trading activities at the OTC physical gold market (+27%) and major exchanges (+19%). Meanwhile, trading at the global gold ETF market was relatively lighter (-13%).”
Turning to market positioning, the World Gold Council wrote that net long positions in the gold futures markets increased over the course of last month, and skyrocketed over 2023.
“Net long positioning on COMEX reached 677t during the last week of 2023, 3% higher m/m and a 42% jump compared to the end-2022 level (476t),” they said. “Money manager net longs saw similar strength, reaching 421t by the end of 2023 and doubling y/y.”
“These changes reflect investors’ improved expectations of the gold price amid shifting macro drivers such as lowering Treasury yields and the dollar,” the WGC said.
According to ING’s recent 2024 gold forecast, the Dutch banking giant expects to see continued growth in both inflows and net longs this year.
“Looking into 2024, we believe we will see a resurgence of investor interest in the precious metal and a return to net inflows given higher gold prices as US interest rates fall,” said Ewa Manthey, Commodities Strategist at ING.
Looking at the market positioning picture, Manthey said that when compared to 2019 and 2020, overall positioning in 2023 was relatively neutral.
“This suggests that there is still plenty of room for speculators to add to their net long in 2024 and push gold prices even higher,” she said.
