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Just a month ago, the latest report from the World Gold Council (WGC) showed that the gold market was beginning to turn a corner as investment demand picked up in June, with global gold-backed exchange traded funds (ETFs) seeing inflows for a second consecutive month in June. However, demand in North America continues to weigh on the market. North American gold ETFs saw outflows of 8.2 tonnes worth $573 million in June, the report said.
This week, data from the World Gold Council showed that global gold ETFs had their strongest month of inflows in July since April 2022, after funds in North America finally joined the buying group.
All regions reported positive inflows in July, with Western gold ETFs contributing the most, the WGC wrote in its report. July’s inflows, combined with a 4 per cent rise in gold prices, pushed total global gold ETF assets under management (AUM) up 6 per cent to $246 billion, a new monthly record. Total gold ETF holdings rose 48 tonnes to 3,154 tonnes in July.
Analysts at the World Gold Council pointed to a number of unexpected events on the political level in July, including the attempted assassination of former US president Donald Trump, followed by Joe Biden’s announcement that he was withdrawing from the presidential race. Gold ETFs saw significant inflows around both events, indicating increased safe-haven demand.
At the same time, falling inflation and the cooling labor market, and Federal Reserve Chairman Jerome Powell said at the recent meeting that a September rate cut is “on the table,” cementing investor expectations that interest rate easing is imminent. That, combined with falling U.S. Treasury yields and a weaker dollar, helped push gold prices to record highs in July and sparked investor interest in gold ETFs. The sharp volatility of US stocks in the second half of July also supported demand for gold ETFs.
The WGC said interest in gold ETFs in Europe had risen as the opportunity cost of holding the metal fell – a trend further boosted by record gold prices. On August 1, local time, the Bank of England announced a 25 basis point interest rate cut, reducing the benchmark interest rate from 5.25% to 5%. This is the first time the Bank of England has cut interest rates since March 2020.
It is worth pointing out that despite gold prices near record levels, the Asian market in July still reached a net inflow of $438 million, the 17th consecutive month of inflows, with India the most inflows. The WGC explained that the strong demand in India is mainly due to the recently announced budget changes, which effectively shorten the eligibility period for long-term investments, reduce the associated tax rate, and make the investment environment for gold ETFs more equitable and attractive.
The Asian gold ETF market has seen inflows of $3.6 billion so far this year, far outpacing all other markets, with China and Japan the main drivers. On the back of record inflows and rising gold prices, assets under management in Asian funds reached $15 billion, the highest level ever, according to WGC analysts.
