Global physically backed gold exchange traded funds (ETFs) have lost $6.7 billion in the first half of calendar year 2024 (H1 2024), suffering their worst first half in a calendar year since 2013, according to a recent note by the World Gold Council (WGC). The report stated that the total holdings of these ETFs have dropped by 120 tons (-3.9 per cent) to 3,105 tons during this period.
Diverging flows between Asia and the West
The WGC noted that while Asian funds attracted a record $3 billion during H1 24, they were significantly outpaced by collective outflows in North America and Europe to the tune of $9.8 billion.
Investors in the West remain unconvinced by gold’s price rise
The report highlighted that Western gold ETF investors did not react as anticipated to the rise in the gold price – which commonly drives up investment flows – amidst a high level of interest rates and a more risk-on sentiment generated by the AI boom. In contrast, the WGC said that Asian flows rhymed with the price strength, as weaknesses in non-dollar currencies and gold’s staggering performance in those currencies attracted investors in the region.
Understanding gold ETFs
According to the WGC, gold ETFs are defined as regulated securities that hold gold in physical form, including open-ended funds traded on regulated exchanges and other regulated products such as closed-end funds and mutual funds. The council tracks gold ETF assets in two ways – the quantity of gold they hold (generally measured in tons), and the equivalent value of those holdings in US dollars (AUM). They also monitor how these fund assets change through time by looking at two key metrics – demand and fund flows.
Exceptional performance of Asian gold ETFs
The report stated that Asia was an outlier that registered inflows of $3.1 billion in H1 2024, significantly outpacing all other markets and the only region witnessing positive flows. The WGC said this represents the strongest ever H1 for Asian funds, mainly driven by record-level inflows into China and Japan. Supported by these record-breaking inflows and a higher gold price, the total AUM of Asian funds reached $14 billion, the highest ever, while collective holdings increased by 41 tons.
Outflows in North America and Europe
On the other hand, North America saw outflows of $4.9 billion during H1, the largest in three years. However, the report noted that a 13 per cent rise in the gold price during H1 also resulted in a 7.7 per cent increase in North America’s total assets under management (AUM).
European funds, too, saw their worst show since 2013, with outflows of $8 billion. Despite a 6 per cent fall in holdings, the WGC said the total AUM of European funds saw a 6.3 per cent rise during the first half, thanks to the higher gold price.
Renewed investor interest in June
In June, the report stated that global physically backed gold ETFs witnessed their second consecutive monthly inflow and attracted $1.4 billion. All regions saw gains except North America, which experienced mild losses ($573 million) for the second consecutive month.
Read more: How is gold priced: A beginner’s guide
What are the factors driving the increased allure of gold?Â
The WGC attributed the increased allure of gold to lower yields in key regions and non-dollar currency weaknesses, which it said increased gold’s appeal to local investors. The report also noted that European funds added $1.4 billion in June, which helped narrow Europe’s H1 2024 outflow to $4.9 billion. According to the WGC, the region’s central banks adopted a different path to that of the US Fed, which aided this performance.
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