Gold ETF Outflows Continue Despite Rising Prices, Driven by Western Profit-Taking

Despite a strong performance in gold prices during the first quarter of 2024, global gold exchange-traded funds (ETFs) experienced their eighth consecutive quarter of outflows, according to the latest data released by the World Gold Council (WGC). ETF holdings declined by 114 tonnes, with assets under management (AUM) reaching their highest level in almost two years at US$222 billion, primarily due to the appreciation in gold prices.

The WGC report highlights a divergence in investor behavior between Western and Eastern markets. While Western investors, particularly in the US and Europe, opted to capitalize on rising gold prices through profit-taking, Asian investors demonstrated a consistent and sustained demand for the precious metal, contributing to inflows into gold-backed ETFs in the region.

North American funds bore the brunt of the outflows, experiencing a 68-tonne decline in holdings, primarily concentrated in January and February. European-listed funds followed suit, with holdings falling by 54 tonnes during the quarter, driven largely by profit-taking in UK-listed funds. However, March saw a slight shift in sentiment, with funds listed in Germany and France experiencing small inflows.

Overall, US- and European-listed ETFs both saw a 4% fall in holdings.

"For much of the quarter investors seemed to focus on the resilience of the US labour market and hotter-than-expected inflation prints, which pushed rate cut expectations further out," says WGC. "Equity market strength further diverted investor attention away from gold."

Asian-listed funds, on the other hand, recorded their fourth consecutive quarter of inflows, driven by strong investor interest in China and Japan. A weakening local currency and underperforming domestic equity markets fueled demand for gold in China, while gold's impressive performance in yen terms contributed to inflows in Japan.

"Asian-listed funds registered non-stop inflows for the fourth consecutive quarter, adding 10t (US$696mn) during the quarter," states the WGC report. "China generated the bulk of the increase, with investor interest in gold flourishing in an environment of a weakening local currency and poorly performing domestic equity markets."