(Mike Maharrey, Money Metals Exchange) For the first December since 2019, gold-backed ETFs globally reported net inflows of gold.
Asian funds drove the global increase in ETF gold holdings to close out 2024.
On the year, ETF gold holdings dropped modestly by 6.8 tons, but assets under management (AUM) rose by 26 percent to a record high of $271 billion thanks to the skyrocketing price of gold.
December Gold ETF Data
Asian funds added 8.7 tons of gold last month after reporting decreased gold holdings in October and November. AUM rose by $748 million.
China led the charge as plunging government bond yields and the expectation of further interest rate cuts boosted demand for gold. Investors also worried that an impending trade war could further weaken the yuan. The return to positive gold flows into Chinese ETFs reflected a broader boost in Chinese gold demand.
Indian-based funds reported their eighth consecutive month of inflows. Rising equity market volatility and bullish sentiment towards gold continued to attract Indian investors to the yellow metal.
For the first time in five months, North American gold-backed funds reported outflows of gold in December. ETF gold holdings dipped by 4.7 tons. AUM fell by $342 million.
In the U.S., hawkish messaging coming out of the December Federal Reserve meeting tempered expectations for interest rate cuts next year. Rising bond yields and a strengthening dollar created headwinds for gold in the U.S. According to the World Gold Council, a decline in market activity during the holiday season also contributed to the outflow of gold.
European fund gold holdings were practically unchanged, dropping by 0.3 tons. AUM increased by $337 million.
Increased gold demand in France helped ETF gold holdings remain steady. Ongoing political turmoil drove French investors to seek a safe haven.
Swiss outflows offset French demand. According to the World Gold Council, this was primarily due to FX-hedging products amid a weakening franc against the dollar.
A sharp rise in government bond yields created some headwinds for gold in Germany.
ETF gold holdings in funds from other regions were unchanged in December. AUM rose modestly by $35 million. Australia and South Africa drove the modest dollar inflows.
Annual Gold ETF Data
Every region except Europe reported increases in physical gold holdings in 2024. However, the outflow from European funds was significant, driving global gold holdings negative on the year with total outflows of 6.8 tons.
In dollar terms, AUM by gold-backed funds globally increased by $3.4 billion.
North American funds reported a modest 8-ton increase in 2024. It was the first annual positive gold flow since 2020. AUM increased by $2.3 billion.
Asian funds accumulated an additional 78.4 tons of gold, increasing AUM by $6.4 billion.
Funds in other regions increased gold holdings by 4.7 tons. AUM rose by $500 million.
European funds shed 97.9 tons of gold. Even with the large outflow of gold, it was a significant improvement over 2023 when European funds reported outflows of 180.4 tons of gold. AUM fell by $5.8 billion.
Gold Trading Volumes
Gold trading volumes averaged $221 billion per day across global markets in December. This was a 24 percent month-on-month decline. According to the World Gold Council, lower price volatility discouraged tactical investors at the COMEX and the Shanghai Futures exchange.
Annually, gold trading volumes rose to $226.3 billion per day, a 39 percent increase over 2023.
According to the World Gold Council, almost all markets saw peak volumes in value terms.
- Over-the-counter (OTC) activities increased by 37 percent.
- Exchange-traded volumes soared by 40 percent.
- Global gold ETF trading rose by 32 percent.
These increases weren’t merely a function of the rising gold price. Volumes rose both in dollar and tonnage terms.
Volumes at the Shanghai Futures Exchange charted the biggest increase and rose to a record high.
COMEX net longs dropped in December, ticking down by 5 percent.
On an annual basis, net longs averaged 555 tonnes last year, a significant increase from a 289-tonne average in 2023. It was the highest average level of net longs since 2011.
Big Picture
Inflows of gold into ETFs can have a significant impact on the global gold market by pushing overall demand higher.
ETFs are a convenient way for investors to play the gold market, but owning ETF shares is not the same as holding physical gold.
A gold ETF is backed by a trust company that holds metal owned and stored by the trust. In most cases, investing in an ETF does not entitle you to any amount of physical gold. You own a share of the ETF, not gold itself.
ETFs are relatively liquid. You can buy or sell an ETF with a couple of mouse clicks. You don’t have to worry about transporting or storing metal. In a nutshell, it allows investors to play the gold market without buying full ounces of metal at the spot price.
Since you are just buying a number in a computer, you can easily trade your ETF shares for another stock or cash whenever you want, even multiple times on the same day. Many speculative investors take advantage of this liquidity.
But while a gold ETF is a convenient way to play the price of gold on the market, you don’t actually possess any gold. You have paper. And you don’t know for sure that the fund has all the gold either, especially when the fund sees inflows. In such a scenario, there have been difficulties or delays in obtaining physical metal.
Mike Maharrey is a journalist and market analyst for MoneyMetals.com with over a decade of experience in precious metals. He holds a BS in accounting from the University of Kentucky and a BA in journalism from the University of South Florida.
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