Gold, World Gold Council, Gold ETF: In March, gold prices soared to new heights, concluding the month with an impressive 8.1% increase. This substantial rise was consistent across major currencies, facilitated by a stable US dollar. The rally, which commenced early in the month, left experts puzzled about its origins. According to the World Gold Council’s Gold Return Attribution Model (GRAM), factors such as Risk and Momentum played significant roles in driving prices upwards. Notably, gold’s implied volatility spiked during March, independent of similar movements in bonds’ implied volatility, suggesting a gold-specific trend. Discover the Cause of Gold’s Bull Run and the Driving Forces Behind this Rally Here.
World Gold Council says within the Momentum category, COMEX managed money futures net positions experienced their third strongest month since 2019, fueled by short covering and fresh longs. Additionally, gold ETFs witnessed increased flows in all regions except Europe. Geopolitical tensions also contributed to market uncertainties, as reflected in the rising Geopolitical Risk (GPR) index. Moreover, macroeconomic indicators hinted at potential stagflation risks, further supporting gold prices amid volatile markets and a lenient Fed.
A notable observation by WGC was the divergence between gold prices and global gold ETF flows, underscoring a significant disconnect compared to historical trends. Despite gold’s record highs, US gold ETFs remain relatively under-allocated compared to previous years, signaling potential for further price appreciation.
Looking ahead, India’s upcoming elections in April are expected to dampen market activity during the six-week polling period. Furthermore, a subdued wedding season suggests limited pent-up demand from Indian consumers in June.
World Gold Council says ”the fundamentals underpinning the current rally include growing geopolitical risk, steady central bank buying and resilient demand for jewellery and bars and coins. Together with the prospect of lower interest rates ahead the suggestion is that ETFs have missed the rally and are now under-allocated.”
Contrary to assumptions of crowded positioning amid record gold prices, data suggests that gold ETFs remain relatively under-owned, similar to previous rallies. Open interest in the futures market also indicates that gold is not overly saturated, indicating potential for sustained upward momentum.
Amidst the recent buzz surrounding bitcoin (BTC) ETFs and speculation about capital shifting from gold ETFs to BTC-backed funds, the World Gold Council (WGC) refutes this narrative, citing lack of supporting data. WGC highlights that outflows from global gold ETFs, particularly EU-listed funds, commenced prior to the launch of BTC-ETFs and did not accelerate thereafter. Additionally, these outflows were less significant when measured in US dollar terms, indicating that investors prioritize capital allocation over ounces acquired.
Recent trends show a strong correlation in asset under management (AUM) growth between BTC and US gold ETF products. WGC interprets outflows from gold ETFs as speculative rather than indicative of structural shifts, contrasting with inflows into Bitcoin, as revealed by WGC survey findings. While the possibility of a turning point remains uncertain, WGC notes a potential shift evidenced by recent North American inflows and easing European outflows.
World Gold Council says India’s upcoming general election, commencing on April 19 and spanning 44 days until June 1, is expected to impact gold consumption due to heightened scrutiny on cash, gold, and jewellery movements. Historical data indicates a decline in gold consumption during election periods, attributed to cautious transactions among industry stakeholders such as bullion dealers, manufacturers, and jewellers. Despite a rise in gold consumption during the 2019 election season, largely influenced by auspicious days and softened gold prices, political events are anticipated to influence gold prices this year. However, WGC suggests that India’s election may not significantly impact gold demand, hinting at a subdued effect on the market.
According to WGC report Despite gold hitting all-time highs, some investors may feel apprehensive about entering the market at such levels. However, analysis from the World Gold Council suggests that gold’s current surge is backed by strong fundamentals. Particularly noteworthy is the low participation of US investors, indicating potential for the rally to continue, a contrast to the market dynamics observed in 2011.
In addition to gold’s unprecedented performance, many other asset classes, including global equities, have also reached historic highs. This has resulted in gold’s share of total assets remaining relatively low, despite its stellar performance. Furthermore, the substantial issuance of financial securities has contributed to this disparity. Given gold’s limited physical supply, its price must compensate to maintain a reasonable share of assets. Yet, this adjustment has not yet materialized, signaling a positive outlook for gold’s continued ascent.
Gold ETF inflow or Outflow in March 2024
According to the latest report from the World Gold Council, global physically backed gold ETFs experienced their tenth consecutive month of outflows in March, totaling US$823 million. Although this represents a significant decline, it is notably less than the outflows observed in February (-US$2.9 billion) and the average of the past nine months (-US$2.4 billion). Overall holdings decreased by 14 tonnes to 3,112 tonnes by the end of March, marking the lowest level since February 2020 and representing a 21% decrease from the record high of 3,915 tonnes in October 2020. Despite the outflows, total assets under management (AUM) rose to US$222 billion, an 8% increase during the month, marking the highest level in 21 months.
In terms of regional trends, all regions except Europe witnessed inflows in March. Notably, North America saw a positive shift in flows for the first time in 2024, while Asia and the Other region also experienced inflows. However, these gains were offset by losses in Europe.
World Gold Council report says for the 13th consecutive month, Asia experienced continuous inflows, with a total of US$217 million in March. Once again, China led the inflows, driven by a local gold price rally that attracted investors. Japan also recorded positive flows during this period. Throughout Q1 2024, Asian funds led global inflows by adding US$678 million, marking a 7% increase in holdings and a 14% rise in assets under management (AUM), bolstered by higher gold prices. Additionally, the Other region saw a modest gain of US$23 million in March, resulting in a year-to-date inflow of US$7 million.
According to report moreover, trading volumes across global gold markets surged in March, averaging US$222 million per day, a 51% increase from the previous month. The over-the-counter (OTC) market volume rose by 25% to US$120 billion per day, and trading activities in London and Shanghai witnessed significant increases in both value and tonnage terms. Major exchanges experienced a substantial rise in volumes, with the COMEX and the Shanghai Future Exchange leading the way. Additionally, turnover in tonnage terms surged as the gold price rally attracted tactical traders. Despite the continued outflows in global gold ETFs, trading volumes notably improved by 39% during the month.
World Gold Council report says at the COMEX, total net longs surged to 679 tonnes as of March, marking a 232-tonne increase from the previous month, the largest in 12 months. Money manager net longs also rose significantly to 491 tonnes by the end of March, the highest month-end level since February 2022. This increase was driven by a rise in long positions and a decline in short positions, as investors were motivated to participate in the gold price surge.