In a recent report released by the World Gold Council (WGC), it was revealed that global gold-backed exchange-traded funds (ETFs) saw outflows for the eighth consecutive month in January. The main reason behind this trend was attributed to significant redemptions taking place in North America.
The WGC noted that as the market pushed back against predictions of early rate cuts by major central banks, gold prices experienced a decline in January, which in turn diminished investors' interest in gold ETFs. As a result, these funds saw net outflows of $2.8 billion, equivalent to approximately 51 tonnes of gold. Collectively, holdings in gold ETFs dropped to 3,175 tonnes, while assets under administration (AUAs) dipped by 2% to $210 billion.
The chart accompanying the report displayed the monthly regional outflows from gold-backed ETFs since autumn 2022. Additionally, it highlighted that gold prices saw a 1% decline throughout January as hopes for imminent interest rate cuts by the Federal Reserve and other central banks diminished.
The report revealed that total holdings in North American ETFs fell by 36 tonnes last month, reaching a total of 1,606 tonnes. In dollar terms, these funds experienced outflows of $2.3 billion, bringing AUAs to $106 billion. This marked a reversal after two consecutive months of inflows into North American funds. By the end of January, total holdings in the region's ETFs were at their lowest level since April 2020.
The WGC explained that recent strong economic data in the United States led investors to reconsider their expectations of the first rate cut by the Federal Reserve in March. Additionally, robust data had a positive impact on the US dollar and Treasury yields, diverting attention away from gold. With US equities reaching new highs, local investors' appetite for gold further declined.
Meanwhile, holdings in European ETFs experienced outflows for the eighth consecutive month, with an 18-tonne reduction in holdings, bringing aggregated holdings to 1,368 tonnes. Redemptions amounted to $731 million, resulting in AUAs of $90 billion. The WGC stated that although the European Central Bank maintained interest rates for the third consecutive meeting in January, officials emphasized that the market may have overestimated expectations of early rate cuts. This redirection prompted European investors to reassess their bets on lower interest rates, leading to notable rebounds in government bond yields and currencies in the region.
In contrast to the global trend, investor interest in Asia-based ETFs continued to rise at the start of 2024. These funds experienced a 3-tonne inflow in January, equivalent to $215 million. This increase brought total holdings to 141 tonnes, with cumulative AUAs reaching just under $10 billion. The WGC attributed this rise to China's dominating effect on the region's inflows. The continuous decline in local equities and a weaker currency sparked an increased safe-haven demand among investors.
Overall, the January report from the World Gold Council highlights the ongoing outflows in global gold-backed ETFs, driven primarily by North American and European redemptions. The market's response to predictions of early rate cuts, robust economic data, and strong performances in the equities market all contributed to this trend. However, Asia-based ETFs bucked the global trend, experiencing inflows as a result of China's safe-haven demand. As the year progresses, it will be interesting to observe how these regional dynamics continue to shape the market for gold-backed ETFs.
