(Mike Maharrey, Money Metals News Service) Led by North American funds, ETF gold holdings grew globally for the third straight month.
ETFs in every region reported inflows of gold totaling 108.3 tonnes. That drove total ETF gold holdings to 3,353 tons, the highest month-end level since July 2023.
In dollar terms, monthly inflows totaled $9.4 billion. It was the strongest month since March 2022.
The combination of metal accumulation and the rising gold price increased total assets under management (AUM) by gold-backed funds by 4.1 percent to $306 billion. This was a month-end record.
North American funds led the way with a huge surge in gold holdings the week of Feb. 21. That week, North American ETFs added over 48 tonnes of gold. The last time we saw weekly flows at that level was April 2020 as governments were locking down economies during the COVID-19 pandemic. This helped push total inflows to 72.2 tonnes on the month.
It was the largest increase in North American ETF gold holdings since July 2020 and the biggest February increase on record.
According to the World Gold Council, news of physical shipments of gold into COMEX vaults from London and other markets helped drive broader market momentum.
“But there were other important contributors. For instance, US Treasury rates trended down with various economic signals flashing red. Lower yields, alongside a weaker dollar, boded well for the gold price during most of the month – in fact, it reached nine new record highs in February before moving lower in the latter half. We believe reduced opportunity costs and a record-shattering gold price were key in attracting inflows. Moreover, a pullback in equity markets and fears of stagflation were also likely positive drivers of demand. Lastly, we have observed significant inflows triggered by gold ETFs’ options expiry, signaling further bullish sentiment from investors.”
Europe reported modest inflows of 2 tonnes. Gold flowed out of funds in the UK, while ETFs in Germany and Switzerland booked gains.
The European Central Bank cut interest rates for the sixth straight time at its March meeting. This could drive increased European interest in gold in the months ahead.
Asian funds added 24.4 tonnes of gold in February. China led the way, despite positive sentiments surrounding its equity markets. A surging gold price in yuan grabbed market attention, causing the Baidu Search Index of the keyword “gold” to surge to the highest level since 2013.
Indian ETFs also reported strong inflows of gold, although moderating from record levels in January.
Japanese-based funds reported increased gold holdings for the fifth straight month.
Fund in other regions grew their gold holdings by 1.3 tonnes. Australian ETFs charted the strongest month since September 2024. There were also notable inflows in South African funds.
Trading Activity
Global gold trading activity increased in February, averaging around $300 billion per day. Over the counter (OTC) trading rose, driven by the London market as dealers moved gold to New York.
Gold futures trading volumes at COMEX dipped, while Shanghai Futures Exchange saw a sizable increase in activity with the surging gold price in yuan terms.
Total net longs at the COMEX dropped by 13 percent to 823 tonnes. Net long position of money managers plunged by 16 percent, but still finished February 9 percent above the 2024 average.
Big Picture
Inflows of gold into ETFs can have a significant impact on the global gold market by pushing overall demand higher.
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 a convenient way for investors to play the gold market, but owning ETF shares is not the same as holding physical gold.
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.
