Gold demand down amid dampened ETF flows, reports World Gold Council

Nov 13th, 2017 | By | Category: Commodities

Global gold demand was 915 tonnes during Q3 2017, a fall of 9% compared to the same quarter last year, due in part to gold ETF inflows being substantially lower than in 2016. These were the findings of the World Gold Council’s (WGC) Gold Demand Trends for Q3 2017.

Gold demand down 9% as gold ETF flows slow, reports World Gold Council

Gold demand down 9% as gold ETF flows slow, reports World Gold Council

While gold ETFs had another quarter of positive net new assets, the net inflows of 18.9t were well short of the 144t influx seen in Q3 2016. Total gold ETF assets reached $96.7bn (2,343t) at the end of September, the highest since October last year. Gold ETFs saw net outflows in July before moderate net inflows resumed in August and picked up again in September. However, inflows were well short of those seen in 2016 – in the first three quarters of 2017, gold ETF flows were 180t, only a quarter of that seen over the same period last year.

The WGC states that ETF investors lacked a clear catalyst in Q3, as the gold market was pulled in different directions.

The geopolitical environment continued to promote gold’s investment case as a safe-haven asset. The increasing war of words between North Korea and the US was high on investors’ radars.

US-listed gold funds added around 90t during August and September (offsetting July outflows of around 60t). The WGC notes that each escalation in tension led to a small but discernible jump in holdings of German-listed gold ETFs. Brexit and terrorist-related incidents also continued to reinforce investor interest.

Monetary policy, meanwhile, was more of a mixed blessing for gold ETFs. For the first two months of the quarter, the probability of a December US rate hike fell steadily. But this reversed sharply in September after hawkish rhetoric from the Federal Reserve pointed strongly to a December rate hike. The gold price closely reflected this shift in expectation, and gold traded in a broad upward range throughout July and August before giving back half of those gains in September.

Gold price moves were similarly mixed in their impact on ETF flows. The report states that gold remaining in the recent $1,200-1,300/oz range for much of the quarter encouraged some price-related tactical trading, as investors took profits as the price rose in July and August before reinvesting near the bottom of the range after the price decline in September. The WGC reports that selling was mainly due to the liquidation of existing positions rather than naked short selling.

The report also states that bullish stock markets had positive and negative impacts on gold ETF flows. On the one hand, investors were reluctant to bet against soaring stock markets which was a drag on ETF flows. On the other hand, many investors increased gold ETF positions as a strategic hedge for their equity positions against the risk of a possible correction.

Gold ETFs listed in Europe saw outflows of 6.8t during the quarter compared to inflows of 30.4t for US-listed funds, marking a turnaround from Q1 and Q2 which had seen Europe-listed funds dominate inflows. Gold ETFs listed in China saw outflows slow to 2.9t, bringing total assets to 42t.

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