Interest rates, exchange trades and gold ETFs

Net asset inflows and outflows… According to the World Gold Council’s May 2022 report released earlier this month, Global gold ETFs ended their four-month positive inflows in May with 53 tons ($3.1 billion) outflows. All regions saw outflows in May, while North America saw the biggest decline in ETFs. Global gold ETF holdings are up 8% year-to-date, about 3% (99t) below the November 2020 peak of 3,922 tonnes.

Global gold ETFs and the US… The rising dollar and interest rates at the beginning of May put pressure on gold. The momentum from ETF outlets also reduced the gold price action to $1,800 mid-month. Gold quickly rebounded from this level with the dollar decline and low US 10-year real yield support, but the strength of the recovery wore off and gold closed the month around $1,850. ETF flows closely mirrored the movement in gold price; In the first half of May, exits accelerated, followed by a wave of diminishing entries at the end of the month. Net outflows were seen in all regions, but funds listed in North America accounted for almost two-thirds of the total, with 34 tonnes ($2 billion) outflows concentrated earlier in the month. The expected half-point rate hike by the Fed likely contributed to the outflows.

European and Asian ETFs… The assets of European-listed funds fell by 17 tonnes ($1 billion). The Bank of England’s fourth consecutive rate hike provided the basis for an exit from European funds. Outflows elsewhere in the region are negligible as interest rates remain steadily negative and geopolitical uncertainty is heightened by the protracted war in Ukraine. It looks like the ECB will raise interest rates at its July meeting, which could lay the groundwork for further reductions in ETF holdings.

The availability of listed funds in Asia is 17 tons lower than in the previous year due to sizable outflows from China. The loosening of the Covid epidemic restrictions in Shanghai and the incentives provided by the Chinese government to stimulate the economy are positive for the Chinese markets at this stage. With the increasing risk appetite, investors’ turn to stock markets may cause money outflow from gold-based mutual funds.

Conclusion? Treasury yields are increasing as the Fed continues to evaluate the monetary tightening path. In the early stages of Russia’s invasion of Ukraine, the perception of geopolitical risk and the general commodities wave was positive in terms of pricing for gold, but there is an ounce drop from the peak at that time. The market began to give more weight to the Fed’s series of rate hikes. While increasing interest rates and the dollar are negative for the price effect in terms of gold, it is necessary to pay attention to the stock market investment appetite for gold demand

Kaynak Tera Yatırım / Enver Erkan

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