Gold ETF outflows accelerates to fourth month in September; turbulence seen in Q4: World Gold Council

Exchange-traded funds (ETFs) backed by physical gold witnessed accelerated outflows in the month of September, latest data from the World Gold Council (WGC) shows.

Physically-backed gold ETFs saw outflows of 59 tonnes equivalent to $3.2 billion by the end of September, recording their fourth consecutive net monthly outflow last month.

The outflows were higher than that in August at 46 tonnes and $2.5 billion.

Total assets under management (AUMs) in worldwide gold ETFs declined to $198 billion last month, impacted by a nearly 4% reduction in the gold price. The collective holdings of the yellow metal by global funds dropped 2% to 3,282 tonnes at the end of September, as per WGC report.

In the third quarter, gold ETFs suffered net outflows of 139 tonnes, or around $8 billion. Global outflows stood at 189 tonnes or $11 billion, in 2023 so far, WGC data shows.

Regional highlights

Funds listed in North America led outflows followed by Europe while Asia continued to see inflows. Overall, investors’ intensifying expectations of rates staying “higher for longer” drove disinvestment in western markets.

In North America, gold ETFs outflows stood at $2.1 billion, or 35 tonnes, in September, registering the fourth monthly slide in a row.

Total holdings in North America were at 1,648 tonnes, while AUM declined to $99 billion at the end of the month.

“The combination of higher Treasury yields and a stronger dollar, which weighed on gold’s performance in the month, might have deterred investors from gold ETFs. Although the US Fed paused as expected during the month, it revised up projections of US economic growth and 2024’s median interest rate significantly,” WGC said.

This has intensified investor expectation that rates will stay higher for longer, dimming interest in gold, it added.

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Europe also witnessed a fourth consecutive monthly outflow in gold ETFs. Regional gold ETFs suffered a loss of over $1 billion, or 28 tonnes during September – a month in which the European Central Bank delivered its tenth consecutive rate hike and reiterated that rates will stay “at sufficiently restrictive levels for as long as necessary.”

Gold prices fell nearly 4% in September

Gold prices declined 3.7% in September dragged by a sharp uptick in bond yields alongside a stronger dollar. The sell off at the end of the month was also likely the result of a strong adverse reaction to US economic data, a fall in the Chinese local premium and a negative technical breach.

With bond yields continuing to move higher alongside a still buoyant US economy, gold is likely to face continued turbulence over the next few weeks, WGC report said.

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However, it does not see a material downtrend being established as support remains from fragile equities, rising recession risk, inflation volatility and continued central bank interest in gold.

“This could represent a buying opportunity to some investors should the market become excessively short,” the report said.

Meanwhile, September saw continued net outflows from global gold Exchange Traded Funds (ETFs), extending their losing streak to four months.

Outlook

“Gold is likely to face some choppiness over the next few weeks as rising real yields, a firmer US dollar and a buoyant economy batter some sectors of investment demand. But longer-term concerns and continued central bank buying should, in our view, ensure that this turbulence does not establish a more material downtrend,” WGC said.

As such, this could present potential gold buying opportunities for some investors. Historically, gold has tended to mean revert in instances when the market (futures positioning) becomes excessively short, it added.

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