The World Gold Council (WGC) defines gold exchange traded funds (ETFs) as regulated securities that hold gold in physical form. This includes mutual funds, closed-end funds and open-ended funds that trade on regulated exchanges.
The organization tracks gold ETFs either by the equivalent value of their holdings in U.S. dollars, or the physical quantity of gold they hold. In addition, the WGC monitors how these assets change through time by examining fund flows and demand.
Latest data from the WGC shows that physically backed gold ETFs globally have lost $6.7 billion between Jan. 1 and June 30 of this year. This performance by the exchange traded funds makes it their worst first half in a year since 2013. A report by the organization showed that total holdings had also reduced to 3,105 tons during this time. Holdings previously stood at 3,225 tons, representing a 3.9% drop.
In a statement, the World Gold Council explained that collective outflows in Europe and North America were significantly higher, especially when compared to inflows into Asian funds during the period, which stood at about $3 billion. The report highlighted that gold ETF investors in the West also didn’t react to the increase in the price of gold as expected.
An increase in the price of this precious metal is known to drive investment flows higher. This effect is even more pronounced in times of high interest rates.
The report also called attention to the fact that the impressive performance of gold in nondollar currencies and weaknesses in said currencies attracted investors to Asia. With regard to regions, WGC observed that Asia was the sole region that saw positive flows, recording $3.1 billion in inflows for the first half of this year.
In a statement, the WGC explained that this was the strongest first half of the year performance for Asian funds ever, primarily driven by peak inflows into Japan and China. For Asian funds, total assets under management for this half of the year hit $14 billion. Collective holdings also increased by 41 tons.
On the other hand, European funds saw outflows totaling $8 billion. However, total assets under management in European funds recorded a 6.3% increase, attributable to the increase in gold’s price.
In North America, the region recorded outflows totaling $4.9 billion, its highest figure in three years. Despite this pit, a 13% increase in the price of gold resulted in a more than 7% increase in total assets under management for the North American region.
It would be interesting to see an analysis of how these outflows from gold ETFs compare with the performance of various gold stocks such as Royal Gold Inc. (NASDAQ: RGLD) over the same period under consideration.
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