Gold ETFs Experience Record Inflows Amid Global Economic Volatility

Global gold ETFs have recorded significant inflows in 2024, driven by soaring demand in Asia, particularly China and India. Despite geopolitical uncertainties and strong US bond yields, North American markets reported robust growth. Meanwhile, European ETFs suffered outflows due to economic challenges and rising local bond yields.

Global gold exchange-traded funds (ETFs) have seen their first positive demand surge for 2024, with inflows reaching 18 tonnes, as revealed by the World Gold Council. Asian markets are at the forefront of this growth, contributing to a substantial 33 percent increase in total assets under management (AUM) so far, accompanied by inflows totaling a significant USD 4.7 billion this year.

The Asian gold ETF scene is particularly dynamic, with USD 2.1 billion funneled into these funds in October alone. This marks the region's 20th consecutive month of inflows. China's appetite for gold ETFs has hit new highs, driven by local gold price spikes and stock market volatility. The surge was further fueled by a series of stimulus announcements in late September, sparking the highest monthly inflow on record.

In India, the trend of growth in gold ETF investments continues. Investors are drawn to gold as a stable asset amid positive movements in gold prices and stock market fluctuations. Moreover, recent changes in India's long-term capital gains tax treatment for gold have enhanced its attractiveness, along with improved trading volumes in over-the-counter markets and increased ETF activity, collectively boosting global gold demand.

As global gold prices maintain their strength and equity market volatility persists, gold is emerging as a preferred investment avenue. This investment trend has translated into strong inflows, lifting gold ETFs to their peak asset levels for 2024. With ongoing geopolitical and economic uncertainties, gold ETFs are expected to remain a favored option for investors seeking stability.

North American gold ETFs have reported inflows for the fourth straight month in October, adding USD 2.7 billion to the sector. This consistent demand has raised eyebrows, given the concurrent increase in bond yields and a fortified U.S. dollar, which traditionally suppress gold interest. However, global economic events, including uncertain interest rate trajectories and geopolitical tensions, continue to support gold as a safe-haven asset, despite these pressures.

The US presidential election's unpredictability has further driven gold demand. Investors, driven by a 'fear of missing out' as gold prices climb, along with escalating Middle East tensions and speculation about North Korea's involvement with Russia amid the Ukraine conflict, have bolstered the demand for safe-haven assets. In contrast, European ETFs reported outflows amounting to USD 563 million in October, with these losses being more widespread across different markets, unlike previous months when the UK bore the brunt.

In Europe, rising government bond yields have increased the opportunity cost of holding gold, despite the European Central Bank's recent 25 basis point rate cut. This, coupled with strengthening Gilt yields in the UK, has discouraged gold investment. The solidifying US dollar and weaker European local currencies amid the continent's economic hurdles have nudged investors away from FX-hedged gold investments, further amplifying Europe's ETF outflows.

Positive inflows were noted in other regions for a fifth successive month, with Australian and South African funds jointly accruing USD 68 million in October. The depreciating Aussie dollar favored local gold returns and spurred currency hedging activities in Australia.

(With inputs from agencies.)