For most of the year, gold’s sluggish performance was driven by outflows from North American-based gold-based exchange-traded funds, according to market analyst Neils Christensen. However, the latest data from the World Gold Council (WGC) shows growing weakness in Euro-based assets.
“The market is struggling to find consistent bullish momentum”
cryptocoin.com As we reported, in a report released on Thursday, the WGC says that global gold-backed ETFs saw an outflow of 15.2 tons last month. Total holdings currently stand at 3,592 tonnes, the lowest level since April. Outflows in ETFs caused gold prices to drop 4% last month. The analyst states that the market is struggling to find consistent bullish momentum as prices hold support above $1,750. Meanwhile, December gold futures were last down 0.17% at $1,758.80 an ounce.
In the WGC Report, it is stated that with the liquidation of 11.5 tons of gold, European-based funds led the exits. 6.6 tons of output was realized in the North American markets. Analysts note in the report that changing monetary policies are encouraging investors to flee the gold market:
Outflows from both regions stemmed from the announcement of the central banks’ forward tightening policy. The European Central Bank signaled tapering only from the pandemic-induced emergency purchasing program, while the US Federal Reserve signaled tapering in the fourth quarter with expectations for higher interest rates next year.
Adam Perlaky: Global gold ETF outflows accelerated last month
WGC notes that the opportunity costs in the gold market have increased further as real bond yields begin to rise in anticipation of tighter monetary policies. Adam Perlaky, WGC’s chief executive and head of ETF Research, said in a statement:
Yields soared to their highest level in the third quarter due to major economic policy changes announced by the European Central Bank and the US Federal Reserve. In contrast, given current US inflation expectations, the dollar strengthened as real yields increased mainly in conjunction with nominal returns. Because of these factors, European and North American funds ultimately accelerated global gold ETF outflows last month.
“Gold plays an important role in portfolio as market volatility increases”
The WGC says the only region where entries were seen last month was Asia. Asian-based ETFs reported 2.4 tons of entries. Analysts say in the report that the precious metal is benefiting from increased uncertainty as the Evergrande liquidity crisis has rattled equity markets. The WGC also notes that the holdings of India-based ETFs have risen to the highest level since 2013.
On the other hand, Adam Perlaky notes that low-cost ETFs continue to attract investors. The industry currently represents about 6% of the global market. Despite rising bond yields, Adam Perlaky says gold still plays an important role in the portfolio, especially as market volatility increases:
The hawkish approach of some central banks, fueled by concerns that inflation may be less volatile than expected, could create headwinds for gold. But the need for portfolio protection and diversification remains constant, especially as investors try to navigate potential stagflation. If the economic recovery slows as inflation rises, the portfolio value of gold will come into focus, as defense assets have historically been the best performers in a stagflation environment.
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