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Other / International
Gold ETFs have garnered growing attention from investors in the Asian region. In August 2023, while North American and European gold ETFs experienced significant outflows, Asia recorded positive inflows. Last month, Asian gold ETFs attracted $429.8 mn in inflows, driven by strong demand in China ($292.8 mn) and India ($118.6 mn), as reported by the World Gold Council. Additionally, Japan witnessed inflows totalling $18.3 mn during the same period.
Indian and Chinese gold ETFs attracted the highest inflows globally in August, even as demand for the precious metal fell worldwide. Notably, gold ETFs in Asia have now witnessed inflows for six straight months. Between January and August 2023, gold ETFs in the continent saw total inflows of $607.5 mn.
Both on a regional and global scale, the Chinese took the lead in attracting inflows. Experts believe that the country’s underperforming equity markets, a depreciating yuan, and concerns in the housing sector have prompted investors to turn to gold ETFs.
Despite these developments, August 2023 proved to be a challenging period for gold globally. Gold prices experienced a 1% drop during the month, mainly influenced by rising bond yields and a stronger US dollar, according to the World Gold Council.
North America and Europe continue to see outflows
In sharp contrast to Asia, substantial outflows were observed in the North American and European gold-backed ETFs last month. North America experienced outflows amounting to $2.67 bn, while Europe saw outflows totalling $314.7 mn.
August 2023 marked the third consecutive month of outflows from North American gold ETFs, constituting the most substantial outflow since September 2022. Within the same timeframe, European gold ETFs also witnessed outflows for the third consecutive month, mostly led by the UK and Germany.
On the outlook for global gold ETFs, the World Gold Council stated, “Soft data continue to suggest that a slowdown is still firmly on the cards. This could result in either a bull steepening or a rare ‘bear’; both phases have on average been gold friendly, yielding an annualised return of 15% – the highest of all the phases.”
Physical gold holdings across regions
The quantum of holdings, measured in tonnes, provides insights into the physical gold held by the ETFs in each region. North America maintains its position as the leader with 1683.7 tonnes of gold, the highest among all regions. Following closely behind is Europe, with 1471.1 tonnes. Despite consistent fund inflows, Asia lags behind with holdings of only 127.8 tonnes.
This is because, historically, people in the region have preferred physical gold in the form of jewellery and bars. However, this is gradually changing. The positive fund flow indicates a growing interest in gold ETFs as an easily tradeable and more liquid form of gold investment.
The increased interest of Asian investors towards gold is also led by factors such as inflation, currency devaluation, and ongoing geopolitical uncertainties. At the same time, it is also noteworthy that the change in holdings is not just influenced by investor demand but also by other factors like market performance and supply.
Looking ahead, market watchers believe that the demand for gold is here to stay.
“Exposure to gold is desirable as it can serve as a store of wealth, particularly in an era of increased money supply and inflation,” said Invesco. “Higher inflation can reduce a country’s real level of debt, but it will also reduce the value of its currency,” the asset manager added.
