Gold price is rising, so why is ETF demand flat?

Gold ETFs have now seen outflows for five of the past six months.

April saw a slight slowdown in the so-called reflation trade and market rotation.

Since November, investors have come to expect stronger economic growth, helping value and cyclical stocks advance at the expense of growth and tech stocks. This has also had a negative effect on bond prices, with economic optimism leading investors to expect higher interest rates in the future.

However, in April markets started to question this narrative, with growth stocks outperforming value stocks and bond prices rising, pushing down yields. One impact was a pick-up in the price of gold, which now sits at around $1,830 per ounce.

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According to the World Cold Council, two main factors were driving this increase in gold prices: a weakening dollar and a decline in bond yields. The pick- up in the price of gold marked a reversal of declining gold prices seen for much of the year. For example, gold ended the first quarter of the year almost 20% below the highs it enjoyed in August 2020.

The result of this gold price increase was a slowdown in gold-back ETF outflows, globally. While in April, US investors continued to pull money out of gold ETFs, in France, Switzerland and the UK, there was a rise in assets under management.

Overall, global gold ETFs lost $1.1 billion in assets, resulting in a decline in AUM of -0.6%. This also meant gold ETFs have now seen outflows for five of the past six months.

However, European gold ETFs saw inflows of $514 million, representing a rise in AUM of 0.6%. This was mostly driven by investors in France, Switzerland, and the UK.

Gold ETFs saw a surge of inflows in 2020, with AUM peaking in November 2020. Since then, gold ETF AUM has fallen by almost 14%. According to the World Cold Council, more than half of this decline was due to outflows and the rest coming from the gold price sell-off in US dollar terms.

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Adam Perlaky, senior analyst at the World Gold Council, commented: “While global outflows continued overall, European funds showed some reinvigorated momentum, especially in terms of low -ost structures. Notably, inflows into three low-cost funds coincided with equivalent outflows from higher-fee funds during the month, suggesting the growing appeal of affordable options to access gold as a buy and hold investment.

“Rates and inflation are top of mind for investors and gold has the potential to mitigate risk and unlock opportunities in both cases because of its dual nature as an investment good and a consumer asset."