US and European trusts expand as China and India gold ETFs shrink...

 

GOLD ETF buying has flipped from Asia to Western investment markets as the precious metal sets new record prices, with trust funds in China and India shrinking after a run of strong growth while European and North American products have begun growing after near-relentless profit-taking.

 

After expanding in 38 of the prior 52 weeks according to data gathered and published by the mining industry's World Gold Council, gold ETFs listed in Asia shrank by 5.3 tonnes across the past fortnight – the heaviest 2-week outflow since Russia's all-out invasion of Ukraine began in February 2022.

 

Gold ETF products in Europe and North America, in contrast, shrank every month between June 2023 and May 2024, extending a near-relentless run of investor profit-taking in gold starting in spring 2022. But trust funds in both regions have now expanded together in 7 of the past 8 weeks, the strongest such stretch in 27 months.

 

 

While the giant GLD gold-backed ETF was unchanged in size Monday, world No.2 the IAU – also with its primary listing in New York – expanded by another 0.2%. That kept their combined size close to end-July's figure of 1,227 tonnes, the highest month-end so far in 2024. 

 

Comparable investment funds listed in mainland China or Hong Kong had meantime grown to a record combined size by the end of July, expanding by 49.8% in the first 7 months of 2024 while gold ETFs in India grew close to their record size of New Year 2013 on the World Gold Council's data. But overall, Asian gold ETFs shrank for a second week running in the 5 sessions ending last Friday, down by 2.0% with fresh profit-taking reversing more of this year's previous surge.

 

Western investors "have been repositioning in favour of gold in the past couple of months," says Jonathan Butler, head of business development and strategy at Japanese conglomerate Mitsubishi's precious metals division, noting "a modest uptick in [global] gold ETF holdings of around 3% since early June."

 

Bullish betting among speculators in Comex gold futures and options contracts – traded and settled by the CME derivatives exchange based in New York – has also grown as prices shot to fresh all-time records, with the net long position of Managed Money traders rising last week back to mid-July's 4-year high on data from US regulators the CFTC and reaching 155% of the long-term average.

 

But like Western ETFs, the "relatively modest scale" of the growth in these gold derivatives positions – especially given the move in gold prices – "suggests there is further upside to come" for investment inflows and price gains, says Butler.

 

 

With the US Federal Reserve now universally expected to start cutting Dollar interest rates from 2-decade highs next month, "recent investor inflows are [only] 1/4th the size of the inflows seen in the 2-month preemptive runup to the 2019 rate cutting cycle," says strategist Nicky Shiels at bullion refining and finance group MKS Pamp.

 

So even with gold prices jumping last week above $2500 per Troy ounce for the first time, "by no means are all investors firing on all cylinders," Shiels says. This means the "Powell Pivot" – now confirmed by the Fed chairman's dovish comments in Friday's Jackson Hole speech – "[plus] any incremental US Dollar weakness, should see inflows accelerate into [November's US] elections."

 

At the same time, says Butler at Mitsubishi, "Gold is about to enter a period of seasonally higher physical demand in the run-up to Chinese National Day holidays," and "the focus of seasonal gold demand will be first in India ahead of the key wedding and festival season," adds Wayne Gordon, commodities strategist at the Global Wealth Management division of Swiss banking giant UBS.

 

Dussehra in mid-October and Diwali in early November are key events for gold jewelry demand in India, the precious metal's No.2 consumer market. But while last month's surprise cut to India's gold import duty initially revived demand through 'formal' channels and hit smuggling flows with a drop in legal bullion costs to consumers, "physical demand for gold is under pressure as prices continue to make higher highs and higher lows" notes Gordon at UBS.

 

Gold prices in China – the precious metal's No.1 nation for mining, importing, consumer demand and central-bank buying – have meantime run below spot bullion quotes in global hub London for 7 sessions running. The longest such stretch since June 2021, that suggests weak demand versus local supplies, and stands in stark contrast to the record-high Shanghai premiums preceding the sharp upturn in global gold prices starting last autumn.