ETFs Continue to Pile in Gold

According to the World Gold Council, demand was driven by persistent trade risk, the consensus short dollar trade that reduced the opportunity cost of holding gold, and lower interest rate expectations after Jerome Powell delivered a dovish speech in Jackson Hole.

Powell’s remarks were particularly influential. There was a quick reversal of gold outflows after the speech.

According to the World Gold Council, low-cost gold-backed ETFs are having their best year on record in North America. These funds are often viewed as a proxy for long-term strategic positioning.

“We consider this to be a signal that – beyond short-term market noise – investors are steadily building safe-haven allocations in response to a backdrop of elevated risks.”

European funds also charted a solid month in August, adding 20.8 tonnes of gold valued at $1.9 billion. Funds based in the UK, Switzerland, and Germany led the surge.

High tariffs levied on Switzerland by the U.S. drove safe-haven investing and boosted gold demand.

German fund growth also reflected safe-haven buying. Analysts revised Q2 economic growth down further, and there are increasing worries about a looming recession.

In the UK, there are growing stagflation concerns as inflation has heated up.

Asian funds saw outflows of -4.7 tonnes in August. Equity strength in China drove a rotation out of safe-haven assets into stocks. The CSI300 Stock Index jumped 10 percent in August.

In contrast, Indian funds recorded their fourth consecutive monthly gold inflows, supported by elevated safe-haven buying in the midst of weak equities as well as ongoing global trade and geopolitical risks.

Funds in other regions, including Africa and Australia, reported modest outflows of -0.2 tonnes.

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.

Gold Trading Volumes

Gold trading volumes were broadly unchanged in August, averaging $290 billion per day. That was a modest 2 percent lower month-on-month.

The minor decline was led by a 17 percent month-on-month decline in exchange-traded volumes, as both the COMEX and the Shanghai Futures Exchange cooled. Even so, the average trading volume of $114 billion per day remains above the 2024 average.

Conversely, over-the-counter trading increased by 12 percent over July.

Total net longs on the COMEX fell by 3.4 percent in August, ending the month at 652 tonnes, even as money manager net longs rose 3.7 percent to 461 tonnes.

Mike Maharrey is a journalist and market analyst for Money Metals 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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