Gold ETF rush defies 8.5% gold price slide
The divergence appears to have been driven largely by futures selling rather than investors abandoning gold.
Investors poured a record amount of money into gold-backed exchange-traded funds (ETFs) last quarter even as bullion suffered its sharpest monthly drop of the year, underscoring an unusual split between ETF investors and futures traders.
Global gold ETFs attracted $10 billion (C$14.3 billion) in September, lifting third-quarter inflows to a record $31 billion, the World Gold Council said Wednesday. Holdings increased by 67 tonnes to a record 4,256 tonnes despite the gold price falling 8.5% during the month to finish September at $4,176 per ounce.
“Gold’s six-week decline masks a notable divergence in investor positioning and underlying demand,” BMO Capital Markets analysts Helen Amos and George Heppel wrote in a Tuesday note . “Unusually, ETFs are still seeing consistent inflows into the price weakness.”
The divergence appears to have been driven largely by futures selling rather than investors abandoning gold, according to BMO and the council. Comex managed-money positions fell by the equivalent of 84 tonnes in September while spread positions dropped by another 156 tonnes.
The futures liquidation more than offset strong ETF demand and helped push bullion lower as U.S. Treasury yields and the dollar strengthened, the London-based council said in its monthly commentary .
The U.S. 10-year Treasury yield climbed 53 basis points during September to 5.3%, while the U.S. dollar index gained 2%. Gold nevertheless continued to attract ETF money, with $1.4 billion flowing into the funds last week, BMO said.
U.S.-listed funds accounted for $689 million of the latest weekly inflows and European funds $452 million, BMO said.
The September decline followed a 13% gold price surge in August to $4,563 per oz., gold’s third-strongest monthly performance in 25 years, according to the council. The metal ended September down 4.4% for the year.
North American ETFs attracted $4 billion in September, taking third-quarter inflows to $12 billion, the council said. European funds brought in $3.6 billion during the month and a record $14 billion during the quarter.
U.K.-listed funds attracted $7.5 billion during the quarter, their strongest three months on record, according to the council. They drew inflows during 12 of the 13 weeks through Sept. 25.
The council estimated that U.K. funds added 54 tonnes during the quarter, about three times the 18 tonnes suggested by their historical relationship with other Western ETF flows.
U.K.-listed funds have attracted $9.5 billion this year, narrowly overtaking Chinese-listed products as the largest source of country-level ETF inflows, the industry group said.
The persistence of the buying suggests investors may increasingly be using gold as protection against fiscal and bond-market risks rather than reacting to a single market shock, the council said. Rising U.K. government-bond term premiums have coincided with ETF buying since July, although the council cautioned that the period is too short to establish a firm relationship.
The council said the pattern differs from the brief U.K. bond-market crisis of 2022 because fiscal concerns and rising yields are now evident across several major economies. ETF inflows have strengthened in France and Germany as well.
The ETF buying adds another layer to gold’s recent break with bonds. Investors at Beaver Creek last month pointed to bullion’s ability to rise alongside real yields as evidence of a changing monetary role; the latest flows suggest that demand is persisting even when higher yields and a stronger dollar pressure the spot price.
India’s domestic gold price moved to a premium over London for the first time since import duties were increased in May, while Chinese premiums remained healthy, BMO said. Both markets are entering a seasonally stronger period for jewelry purchases.
Central banks added 39 tonnes of gold in August, up 70% from July and twice the amount bought a year earlier, BMO said, citing council data. China, Poland and Uzbekistan led the buying.
ETF, physical and central-bank demand are therefore holding up even as bullion retreats, while BMO attributes much of the price weakness to reduced futures positioning.
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