Gold ETFs Suffer Outflows, Await Clues Concerning US Interest Rates

Gold exchange-traded funds have edged lower so far this year after gaining around 13% in 2024, based on the performance of the most liquid product — the SPDR Gold Shares ETF GLD.

Prices remain above the $2,000 level as geopolitical tensions and expectations of lower interest rates have kept gold bullion buoyant.

On Tuesday, the front month gold futures price was up 0.9% — the 11th-consecutive week of closes above the $2,000 level. But the price has been trending gradually lower.

“Gold has been trading in a narrow range awaiting clues on the outlook for U.S. interest rates — higher borrowing costs are typically negative for gold,” said Warren Patterson, head of commodities strategy at ING.

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In January, gold-backed ETFs experienced net outflows of $2.8 billion.

It was the eighth consecutive month of outflows, largely due to heavy redemptions in North America, according to the World Gold Council (WGC).

The WGC said in its latest Gold ETF Flows report: “Recent robust US economic data has led investors to reassess their bets on the Fed's first-rate cut in March — the probability priced in by swap markets fell sharply.

“As a result, both the dollar and the 10-year Treasury yield rebounded, weighing on the gold price and leading to sales of gold ETFs.”

Patterson at ING added that the total know ETF holdings of gold had continued to decline in February as bets on early rate cuts continued to fade.

“They have dropped by around 1 million troy ounces in the month so far,” Patterson said, citing the system for weighing precious metals based on a pound of 12 ounces as opposed to the traditional 16.

Gold ETFs Losing Ground

• The SPDR Gold Shares ETF has fallen 2.5%
• The next most liquid iShares Gold Trust IAU is down 2.5%
• The Granite Shares Gold Shares BAR is also 2.5% lower.

Shares in gold miners and their associated ETFs have performed even worse. This is down to costs. Energy prices, mining machinery, permits, labor costs, have all risen. Taken together in percentage terms, the cost of producing gold has risen more than the price of gold in the past decade.

The most liquid among the gold miners-backed ETFs, the VanEck Gold Miners ETF GDX is down 13.4% so far in 2024.

Its top three holdings are:

• Newmont Goldcorp NEM, down 18% in 2024
• Barrick Gold Corp GOLD, down 19% and
• Agnico Eagle Mines Limited AEM, down 11.5%.

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