Physically backed gold exchange traded funds (ETF) had their fifth consecutive monthly inflow in September, attracting approximately USD$1.4 billion, according to the World Gold Council (WGC).
According to data released on Tuesday, North American inflows concentrated during the month, while Europe saw mild outflows, the only region to do so.
With continued inflows and a record-breaking gold price, global assets under management (AUM) increased by 5 per cent to USD$271 billion, reaching another month-end peak. Collective holdings rose by 18 tonnes, bringing the total to 3,200 tonnes by the end of September.
Recent continuous inflows have trimmed year-to-date (y-t-d) outflows from global gold ETFs, flipping them positive to USD$389 million. These inflows, combined with a soaring gold price, have driven a 26 per cent surge in total AUM for the year. Notably, North American funds have also flipped positive for y-t-d flows, making Europe the only region with outflows in 2024. Despite a recent slowdown in demand, Asian funds continue to lead global y-t-d inflows.
North American funds recorded inflows for the third consecutive month, adding USD$1.4 billion in September. The US Federal Reserve surprised investors by cutting rates by 50 basis points at their September meeting, driving down Treasury yields and the dollar. This drop in opportunity costs boosted investor interest in gold ETFs.
The rising gold price attracted attention and led to the exercise of in-the-money call options in major gold ETFs, resulting in significant inflows at expiration. Rising geopolitical tensions in the Middle East also fuelled safe-haven demand, further driving inflows into gold ETFs.
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Germany and Switzerland saw minor inflows
In contrast, Europe experienced a loss of USD$245 million in September, ending its four-month inflow streak. The outflows were primarily from UK funds, as the Bank of England (BoE) held rates steady at 5 per cent, citing inflation risks from wage growth.
This cautious stance led to a rebound in UK gilt yields, coinciding with outflows from major UK gold ETFs. However, both Germany and Switzerland saw minor inflows, likely due to safe-haven demand amid Germany’s worsening economic outlook. Expectations of a European Central Bank (ECB) rate cut in October, despite a pause in September, contributed to increased gold demand as local yields fell.
Asian funds attracted US$175 million in September, marking the region’s 20th consecutive month of inflows. India continued to see strong inflows, driven by factors similar to those in previous months, alongside rising gold prices and geopolitical risks. Chinese inflows were mild, as a late-month equity rally drew some attention away from gold.
Elsewhere, funds reported inflows for the fourth straight month, with USD$120 million added in September. Australian and South African funds led the gains. The Reserve Bank of Australia (RBA) kept rates unchanged, but lower yields and a record-breaking gold price in local currency extended Australian gold ETF inflows to four consecutive months. In South Africa, a 25 basis point rate cut triggered a sharp drop in local yields and a weaker rand, contributing to the fifth consecutive monthly inflow into gold ETFs.
Global gold trading volumes rebounded in September, averaging USD$259 billion, which is 7 per cent higher month-on-month. Over-the-counter (OTC) activities drove this increase, rising 10 per cent month-on-month to USD$176 billion per day, translating to a 6 per cent increase in tonnage terms.
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Money managers pushed positions to 793 tonnes in September
Exchange-traded products saw a marginal 0.2 per cent increase in volumes, with rising activity at COMEX (commodity exchange) offset by lower volumes in Shanghai. Despite continued inflows, global gold ETF trading cooled in September, dropping by 5 per cent month-on-month.
COMEX total net longs continued their rise, reaching 976 tonnes by the end of September, a 6 per cent increase month-on-month and the highest month-end level since February 2020.
Money managers mainly drove the increase in net longs, pushing their net positions to 793 tonnes by September, which is 8 per cent higher than the end of August and 84 per cent above the first half of the year’s average of 430 tonnes. Similar to previous months, gold’s strong performance and rising investor bets on future Federal Reserve rate cuts were the main drivers.
Inflows and outflows in the gold market, particularly in gold ETFs, can trigger significant downstream effects across both financial markets and the broader economy.
One of the most immediate impacts is on gold price volatility. When inflows increase, demand for gold rises, pushing prices higher as fund managers purchase physical gold to back the securities. Conversely, when outflows occur, gold assets are sold off, reducing demand and causing prices to drop. This volatility can affect not only the gold market but also investor sentiment in other asset classes.
These movements also influence currency markets.
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Safe haven demand rises with geopolitical uncertainty
In the US, for example, inflows into gold often correlate with a weakening dollar as investors shift away from dollar-denominated assets. On the other hand, outflows can strengthen the dollar as investors return to bonds or equities. In countries like Australia or South Africa, where gold plays a large role in the economy, inflows can boost the local currency, while outflows can weaken it.
Furthermore, during periods of geopolitical uncertainty, safe-haven demand rises, leading to inflows into gold as investors seek stability. This behaviour reinforces perceptions of global instability, causing further risk aversion and flight to safe assets. In contrast, outflows can signal growing confidence in global markets, pushing investors toward riskier assets like equities and emerging markets.
Inflows and outflows can also have a direct impact on central bank policies and interest rates. When investors expect central banks to lower rates, gold becomes more attractive, and inflows rise. This happens because the opportunity cost of holding gold, a non-yielding asset, decreases. When central banks raise rates, however, outflows often occur as bonds and other interest-bearing investments become more appealing.
Additionally, these trends affect the gold mining industry as well.
Higher gold prices, driven by inflows, increase profit margins for mining companies, encouraging investment in exploration, production, and development. This presents a direct benefit for companies like Calibre Mining Corp (TSE: CXB) (OTCMKTS: CXBMF) with its operations in Nicaragua, Nevada and Newfoundland.
However, when prices fall due to outflows, mining companies with higher costs may face profitability challenges. This can lead to cutbacks in production, delays in new projects, and reduced exploration activity.
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