Global Gold ETFs Reach New Highs as India Drives Inflows with 4.5% Monthly Return
Asia continues to strengthen its position as a magnet for gold investments, marking the 17th consecutive month of inflows with a notable USD 438 million influx in July, according to a recent report by the World Gold Council. India has emerged as a leader in these inflows, largely due to the reduction in gold import duty from 15 per cent to 6 per cent following the Union Budget announcement.
As of July 23, the adjustment in India’s gold import duty has had a significant impact on the market, driving a strong year-to-date (YTD) performance. In July, gold prices in India climbed to Rs 65,314 per 10 grams, reflecting a 4.5 per cent gain for the month and a 17.5 per cent YTD return. This surge has bolstered interest in Indian gold Exchange Traded Funds (ETFs), as investors seized the opportunity presented by favorable market conditions.
These regulatory changes have made gold ETFs a more appealing investment option, enhancing the overall attractiveness of gold as an asset class. The robust performance of gold in the local currency has further fueled this momentum, solidifying its status as a preferred investment among Indian investors.
After a brief dip in June, gold rebounded strongly in July, ending the month 4 per cent higher at USD 2,426 per ounce. The precious metal even touched an all-time high of USD 2,480 per ounce in mid-July before easing slightly towards the end of the month.
The July rally was driven by lower 10-year Treasury yields and a weaker US dollar, according to the Gold Return Attribution Model (GRAM). However, the Commodity Exchange (COMEX) futures market saw a mismatch between the rise in open interest and net longs, which dampened the overall performance.
The gold market also experienced a spike in implied equity volatility (VIX) in early August, influenced by factors such as a Bank of Japan interest rate hike, global market de-leveraging, and weaker-than-expected US employment data. Although some losses have been recovered, it may take time for the market to return to pre-selloff levels.
Global gold ETFs recorded their strongest month since April 2022, attracting USD 3.7 billion in July, marking three consecutive months of net inflows. All regions contributed to these positive flows, with Western funds leading the charge.
The combination of robust inflows and a 4 per cent increase in gold prices pushed the total assets under management (AUM) of global gold ETFs to a new month-end high of USD 246 billion. Collective holdings also rose by 48 tons, reaching 3,154 tons, the highest level since January.
Despite a slow start earlier in the year, Asia has emerged as a standout performer, recording YTD inflows of USD 3.6 billion, significantly outpacing other regions. With record-breaking inflows and strong gold prices, the total AUM of Asian gold funds reached an all-time high of USD 15 billion, with collective holdings increasing by 47 tons.
Gold trading volumes surged across all markets in July, averaging USD 250 billion per day—a 27 per cent month-over-month increase and well above the 2023 average of USD 163 billion per day.
This increase in trading volumes was driven by stronger activity in the London Bullion Market Association (LBMA) and a 51 per cent month-over-month rise in volumes across major exchanges, with COMEX leading the way. Global gold ETFs also saw a 9.3 per cent increase in trading activities, primarily due to North American funds.
As gold enters August, it traditionally benefits from seasonal factors, particularly from weaker bond yields. However, several variables could influence its performance.
Market sentiment has turned more cautious following weak US economic data. Yet, the Federal Reserve’s careful stance ahead of the upcoming elections may present a downside risk to gold if the Fed’s messaging does not align with market expectations.
The evolving political landscape in the US, particularly with the upcoming Democratic National Convention, could also affect gold. Both major political parties are expected to maintain policies favorable to gold.
Additionally, a potential market sell-off triggered by disappointing Q2 earnings from US tech giants could further boost gold, as it has been a safe haven for investors throughout the year.
