Western ETF Investors Set to Boost Gold’s Record Rally, Reports Reuters

By Ashitha Shivaprasad

Analysts predict that inflows into gold exchange-traded funds (ETFs), especially from Western investors, will increase in the coming months, providing additional support for the already record-high gold prices.

Gold prices have soared approximately 27% this year, surpassing $2,600 per ounce, thanks to more accommodative central bank monetary policies and various geopolitical tensions. Interest rate cuts in the U.S., Europe, and recently China have bolstered bullish sentiment, with many market participants eyeing potential further gains, including a target of $3,000 per ounce.

Exchange Traded Products (ETPs), including ETFs, enable investors to gain exposure to gold without the need to take physical delivery of the metal. An increase in ETF holdings is significant for market prices since these products are backed by actual gold.

Rising inflows into ETFs can reduce the supply of gold available in the market, further buoying prices. Suki Cooper, an analyst at Standard Chartered, stated, "Now that the rate-cutting cycle has commenced, we think ETP inflows are likely to accelerate, supporting the next leg higher in gold." She noted that ETP flows, which are closely linked to real yields and the strength of the dollar, have turned positive, with the majority of recent inflows originating from Europe. However, North America has also shown growing interest in the past two months.

According to the World Gold Council (WGC), global gold ETFs saw inflows of 28.5 tonnes (equivalent to $2.1 billion) in August, with positive contributions from all regions, particularly from Western funds. North America alone accounted for 17.2 tonnes ($1.4 billion) in inflows last month. The softer U.S. economic data, dovish comments from the Federal Reserve, declines in the dollar and yields, along with lower opportunity costs, were factors that fueled these inflows.

This comes after gold ETFs experienced three consecutive years of outflows due to elevated global interest rates. The recent four months of inflows have only slightly mitigated the year-to-date losses, which currently total a net outflow of 44 metric tons.

Recently, the Federal Reserve started a widely anticipated series of interest rate cuts, initiating with a substantial half-percentage-point reduction. The European Central Bank followed suit, cutting rates in June and again earlier this month. Additionally, China’s central bank announced broad monetary stimulus and measures to support the property market in response to significant deflationary pressures, including a planned 50 basis point cut to banks’ reserve requirements.

Major financial institutions such as J.P. Morgan, Goldman Sachs, Citi, and UBS have reaffirmed their bullish outlook on gold and expect prices to continue rising along with ETF holdings. Goldman Sachs highlighted that the Fed’s rate cuts are likely to draw Western capital back into gold ETFs, which have been notably absent from the strong gold rally seen over the past two years.

J.P. Morgan projected that retail-focused ETF growth will be essential for a sustained gold rally, forecasting prices to approach a target of $2,850 by 2025.

Gold prices touched a record $2,639.95 per ounce recently, propelled by expectations of continued monetary policy easing and ongoing geopolitical tensions. With lower interest rates reducing the opportunity cost of holding non-yielding bullion, gold is increasingly viewed as a safe-haven asset amid market turmoil.

Ole Hansen, head of commodity strategy at Saxo Bank, remarked on this trend, noting, "The foundation of the current fresh ETF demand has been that rates are coming down, but it raises the question of whether investors are willing to buy at such elevated prices."