World gold ETFs lost 107.5 t (-US$5.9 billion, -2.9% assets under management [AUM]) in March, marking outflows for the fourth month out of five, according to data from the World Gold Council.
This was also the second month in a row in which net outflows ranked the top 10 worst outflows historically. Global AUM stand at 3574 t (US$194.5 billion), back to levels last seen in June 2020. Since the peak asset levels in November 2020, gold ETF holdings have fallen nearly 9% in tonnage terms, on a par with the approximate loss in the price of gold over the same period.
At a regional level, outflows were once again driven by North American funds of 68.5 t (-US$3.8 billion, -3.5%), mainly from the largest funds but also from some low-cost gold ETFs which had previously been spared heavier outflows in recent months. European funds saw outflows of 45.3 t (-US$2.5 billion, -2.9%), from funds across multiple countries. Funds in ‘other’ regions had minor outflows of 0.9 t (-US$64 million, -1.8%). Asian-listed funds, led by China, had another strong month of inflows of 7.2 t (US$427.2 million, +5.8%).
North American gold ETF funds drove 86% of 1Q21 net outflows
North American funds represented 86% of global net outflows, falling by 145.4 t (-US$8.1 billion, -6.7%) in 1Q21. SPDR Gold Shares lost US$7.5 billion (-10.5%), followed by iShares Gold Trust, which lost US$1.1 billion (-3.6%). There were a few bright spots in the region: SPDR Gold MiniShares saw inflows of US$380 million (9.5%), the largest of any fund globally, followed by newly launched CI Gold Bullion Fund, which added US$369 million. European funds lost 51.7 t (-US$2.5billion, -2.6%) during the quarter, with UK-listed funds accounting for most of the outflows (39 t).
While funds in ‘other’ regions had small inflows of 2.5%, the major positive trend during the quarter came from Asian-listed funds, which collectively added 17.8 t (US$1 billion, 14.6%), driven by China, India, and Japan. The strength of investment demand in these markets has been partially linked to opportunistic ‘dip buying’ at a time of gold price weakness, although stock market volatility was the primary driver in China in particular. This was reflected by the local gold-price discount in India and China turning positive during the quarter.
Gold price performance
Following price weakness in the first two months of the year, the gold price extended its decline in March. Gold finished the month 3% lower at US$1691.1/oz. It held above US$1700/oz for most of the month, before falling back below that level in the final few days. By the end of March, gold was down over 10% year-to-date, its weakest quarterly performance since Q4 2016, and 18% below the record US$2067/oz achieved in early August 2020.
Despite the downward move in price, gold’s 1-month implied volatility – reflecting market expectations of future fluctuations in the price – finished the month close to 14%, well below its historical realised average of 16% and the average level of 20% seen in 2020.
The World Gold Council’s short-term price performance model suggests that the primary driver of gold’s decline during March, and throughout 1Q21, were higher interest rates, impacting the opportunity cost of holding gold .
Looking forward, the World Gold Council believes that a levelling in interest rates on the back of accommodative global monetary policies, combined with rising money supply and further inflationary pressures, may support gold investment demand.
Gold-backed ETFs and similar products account for a significant part of the gold market, with institutional and individual investors using them to implement many of their investment strategies. Flows in ETFs often highlight short-term and long-term opinions and desires to holding gold.