According to the World Gold Council (WGC), there was an acceleration in gold-backed exchange-traded funds (ETFs) outflows in August after a brief slowdown in the previous month.
In the past month, global ETFs backed by physical metal saw outflows of 46 tons, amounting to approximately $2.5 billion. It marked the third consecutive month of net outflows, up from the 34-ton outflow observed in July.
The cumulative holdings in these funds stood at 3,341 tons last month. Meanwhile, assets under management (AUM) decreased to $209 billion.
The WGC said the primary reason for August's outflows was the weakness in the gold price, particularly in the first three weeks of the month. Gold values declined by one percent over the month, falling below $1,950 per ounce, as U.S. Treasury yields rose.
In contrast, the average trading volume for gold experienced an 18 percent month-on-month decrease, reaching $143 billion per day in August. The decline in trading activity was attributed to the subdued performance of the gold price.
It led to a notable drop in volumes for exchange-traded contracts, particularly COMEX, which saw a sharp 41 percent decrease. While over-the-counter (OTC) gold trading activities decreased by six percent compared to July, there was an 18 percent month-on-month increase in the volumes of global gold ETFs.
The WGC reported that during the initial eight months of 2023, gold ETFs experienced net outflows amounting to $7.5 billion. It resulted in a decrease of 130 tons in total holdings for the same period.
Decline in Europe, North America
Last month, European funds experienced net monthly outflows of $315 million, equivalent to eight tons. It decreased AUMs and total holdings to $92 billion and 1,471 tons, respectively.
Liquidations in the U.K. and Germany were responsible for these outflows, totaling $5.8 billion or 96 tons. In August, Europe — along with North America — continued to lead in terms of outflows.
The organization noted that 35 percent of the reversal was due to fluctuations in the local currency affecting FX-hedged products. Most of the remaining outflows could be attributed to increasing expectations of higher interest rates, given Europe's persistently high inflation.
In North America, there were net monthly outflows of 44 tons — equivalent to $2.7 billion — in August. It marked the most significant decline in 11 months, driven by the upward trajectory of government bond yields.
"Fed Chair [Jerome] Powell's remarks at Jackson Hole further firmed investors' belief that rates are going to stay higher for longer, reducing gold's allure as the opportunity cost climbs," said the WGC.
August's shift resulted in a negative demand trend for North American funds since the beginning of the year. Holdings declined by 41 tons, reaching 1,684 tons. AUMs decreased by $2.1 billion to $105 billion.
Positive inflows in Asia
Asian funds saw the sixth consecutive month of increasing net holdings in August. ETFs saw an additional inflow of seven tons, bringing the total holdings to 128 tons. Concurrently, AUMs increased to $8 billion, representing a month-on-month growth of $430 million.
Asia is the region that experienced positive inflows from January to August. During this period, AUMs increased by $608 million. Holdings expanded by nine tons due to robust buying activity in China and Japan.
The WGC emphasized that the decline in local equity markets and the renminbi's depreciation in the previous month compelled Chinese investors to seek refuge in safer assets like gold. Consequently, AUMs in China increased by $293 million, with gold holdings rising by approximately five tons.
The Istanbul Gold Exchange Traded Fund in Turkey attracted the highest inflow, totaling $14 million. Elsewhere, Australia's Global X Physical Gold also gained an inflow of $7 million.