Will ETF Investment Spark a Gold Rally?

Gold has been a notable performer so far in 2023, with prices increasing $100/ounce from their 2022 year-end levels and reaching an eight-month high. Increasing concerns over the potential for a global recession have underpinned prices. The dollar extended its downtrend to a seven-month low this week as Fed rate hike prospects were dialed back, and this has lent support to gold as well.

Global Gold ETF Holdings

In the wake of Russia’s invasion of Ukraine last February, there was a strong buildup in gold Exchange Traded Fund (ETF) holdings. The World Gold Council (WGC) measured April holdings at 3,888 tonnes, an increase of 220 tonnes from February and close to the all-time high of 3,919 tonnes from October 2020.

Global risk anxiety and inflation concerns have subsided, and that has led to a steady outflow from ETFs. WGC’s data show that holdings declined from May to December, the longest streak of outflows since 2013/14. Holdings fell 415 tonnes (-10.6%) over that timeframe, and the December month-end total of 3,473 tonnes was the lowest since April 2020.

The two smallest outflows were seen in November (-26.1 tonnes) and December (-4.5 tonnes). It was surprising that there were any outflows at all during a period when gold prices rose by more than $170/ounce. Gold prices are up $100 so far in January, and gold ETF holdings remain close to their December month-end level. If investors surge back into gold ETFs, it could provide another boost to gold prices.

Originally Published January 20, 2023

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