Investor appetite for gold ETFs picks up

Likely causing this new surge of inflows was the recovery in gold prices.

9th June 2021 11:05

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Likely causing this new surge of inflows was the recovery in gold prices.

Global gold inflows picked up in May, reversing the trend of the past three months.

According to new data from The World Gold Council, investors added $3.4 billion to gold-backed exchange-traded funds (ETFs) over the course of the month, representing an increase of 1.7%.

Following a stellar year for gold in 2020, the yellow metal had lost its shine in recent months. As data from The World Gold Council shows, from February through to April, gold ETFs experienced outflows. The month of May, therefore, represented a reversal of this trend, being the first-time gold ETFs had experienced inflows in three months.

The pick-up in popularity of gold ETFs was also seen in the latest ETF purchase data on interactive investor. In May, both WisdomTree Physical Gold (LSE:PHAU) and iShares Physical Gold ETC (LSE:IGLN) re-entered the top 10 most-bought ETFs rankings. These ETFs had regularly featured in the rankings in 2020 before falling out earlier in the year.

Likely causing this new surge of inflows was the recovery in gold prices. Gold finished the month 7.5% higher per ounce. That followed a price rise in April. Taken together, gold has rallied by 13% in the last two months. The precious metal now has a roughly flat return for the year.

Driving this pick-up in gold prices was likely the growth of inflation concerns. As we recently noted, this price growth has benefited from active and passive gold funds. Of the best performing funds in May, seven had some form of gold exposure. The fund Baker Steel Gold & Precious Metals was the top performer, returning almost 12% over the course of the month. Close behind was Ninety One Global Gold, with a return of 11%.

Adam Perlaky, senior analyst at the World Gold Council, commented: “May broke the three-month stronghold of ETF outflows, reaching an asset under management modest of 2020 highs, with strong activity from the US, UK, and Germany. As the end of the second quarter approaches, we continue to monitor tailwinds driving gold’s performance in the short term as seen in the first quarter.

“Gold remains a promising asset for investors as market behaviour continues to be controlled by inflationary pressures coupled with the US dollar diluting in strength and lower real yields, further seen by the increase in gold price."

However, gold ETF assets are still way below where they were in 2020, when gold’s popularity and price hit a peak. As data shows, global gold ETFs now hold 3,628 tons worth of gold worth around $222 billion. In terms of tons, that is 7% short of the October 2020 tonnage high of 3,908 tons. Measured in terms of assets under management (which fluctuates with the price of gold), gold ETFs assets are 9% below their August 2020 high.

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Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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