WORLD GOLD COUNCIL : Global gold-backed ETF flows are now positive in 2018

 Holdings in global gold-backed ETFs and similar products rose in November by 21.2 tonnes(t) to 2,365t, equivalent to US$804mn in inflows, marking the second consecutive month of net inflows. Global gold-backed ETF flows are now positive in US dollar terms on the year.** The price of gold was little changed (+0.2%) and global assets under management (AUM) rose by 1.1% in US dollars relative to October. 

**See note on tonnage/ flows differences below. ** 

Global stock markets remained volatile, although they ultimately ended the month mixed. Oil performance was a key story as the commodity fell more than 22% on the month amidst supply concerns. The US 2/10 Treasury yield curve flattened to near-low prices on the year as investors became concerned that US economic conditions may have peaked and could be showing potential for a recession in either 2019 or 2020. Long-dollar hedged gold is now higher on the year, rallying over 6% in Q3 with the improving gold and US dollar pricing. 

November flows were positive across all regions. European funds led global inflows, with strong flows into UK-based funds as Brexit concerns increased and sterling weakened. North American funds saw inflows for a second straight month but remain negative on the year. Asian funds reversed two months of weak performance adding 2.3% to their assets. 

Overall, gold trading volumes remained flat m-o-m, 10% below the y-t-d average. The LBMA announced a new reporting system for gold OTC trading volume (LBMA-i), which provides improved transparency into the liquidity of the gold market. Sentiment and positioning in COMEX futures remain bearish, well below historical averages. As discussed in our recent note Gold recoils amid selloff but may rebound, extreme bearish positioning in futures has historically preceded strong rallies in the price of gold. 

Regional flows 

  • • Holdings in European funds rose by 10.5t (US$372mn, 0.9%) 
  • • North American funds had inflows of 8.4t (US$353mn, 0.8% AUM) 
  • • Funds listed in Asia increased by 2.1t (US$72mn, 2.3%) 
  • • Other regions saw a small increase in holdings of 0.2t (US$7mn, 0.6%) 

Individual flows 

  • • SPDR® Gold Shares led global inflows, gaining 7.7t (US$309mn, 1.1%), followed by iShares Physical Gold which gained 5.4t (US$207mn, 6.3%), and Gold Bullion Securities 2.1t (US$82mn, 2.7%)--both in the UK--as well as Huaan Yifu Gold, in China, which added 2.7t (US$104mn, 13.3%) 
  • • Low-cost gold-backed ETFs in the US continue to add assets as strategic holders increase holdings*** 
  • • Funds with outflows were few but were led by Invesco Physical Gold, which lost 2.0t (US$ 78mn, 1.8%) and Bosera Gold, which was down 1.1t (US$45mn, 9.5%) 

Y-t-d flows 

  • • Collectively, US dollar flows in gold-backed ETFs are now positive having raised US$354mn (40bps), despite the recent trend driven by a strong US dollar and bearish gold market sentiment** 
  • • North America reported a second monthly inflow after six consecutive months of outflows but remain negative on the year by 50.0t (US$2.1bn, 4.6% AUM) 
  • • By contrast, European funds continue to see net positive inflows with $2.9bn coming in (7.1% AUM) y-t-d 
  • • After starting the year strong, Asian funds have given up all their gains and are now negative losing 1.5% of their assets y-t-d 

**Note: We calculate gold-backed ETF flows both in ounces/tonnes of gold and in US dollars because these two metrics are relevant in understanding funds’ performance. The change in tonnes gives a direct measure of how holdings evolve, while the dollar value of flows is a finance industry standard that gives a perspective of how much investment reaches the funds. This month, the reported flows measured in tonnes of gold and their dollar value equivalent seem inconsistent across regions. Both figures are correct. The disparity due to the interaction between the performance of the gold price intra-month, the direction of the dollar, and the timing of the flows. For example, Europe experienced outflows early in the month when the price of gold was low but gained assets later in month when the price of gold increased. 

***Low-cost US-based gold backed ETFs are defined as gold-backed ETFs that trade on US markets with annual management fees of 20bps or less

06 Dec 2018

About the author

Ross Norman

Ross started his business career with business guru Sir Clive Sinclair of Sinclair Research in Cambridge, before joining Johnson Matthey as Gold Refining Manager (then the worlds largest gold refiners), then as a gold trader at NM Rothschild & Sons (the Chairman of the London Gold Fixing) and later Credit Suisse, where he was a Senior Dealer in physical bullion trading.

Ross has an enviable record within the London Bullion Market in forecasting the gold price over the last decade and is frequently sought by the media for commentary on the bullion markets. Ross has made frequent appearances on TV (BBC, CNBC, CBC) in newspapers (FT. Wall Street Journal) as well as in the newswires (Reuters, Bloomberg and Dow Jones).

e: ross.norman@sharpspixley.com