Last month saw physically backed gold ETFs notch their first monthly inflow since last May, amounting to some US$529 million, according to the World Gold Council’s (WGC) latest monthly report.
Buoyed by a stronger gold price and inflows, total assets under management grew 2 per cent to reach US$234 billion, the highest since April 2022, while collective holdings rebounded to 3,088 tonnes.
Holdings, however, still remained 8.2 per cent below the 2023 average of 3,363 tonnes, the WGC noted.
Looking at flows, European and Asian funds dominated the list, with Asian funds delivering their 15th consecutive monthly flows. In comparison, Europe recorded its first positive flow since May 2023.
Meanwhile, North American fund flows turned negative again at -US$139 million, following two consecutive months of inflows.
“Compared to the region’s outflows in prior months, the negative May figure was the smallest since December 2019,” WGC pointed out.
Notably, it found investor interest appeared to be linked to spikes in geopolitical risks as sporadic gold ETF inflows coincided with upticks in the Geopolitical Risk Index.
The WGC explained: “During the remainder of the month gold ETF flows fluctuated with the gold price; for instance, hawkish Fed minutes from its latest meeting weighed on the gold price towards the end of May, leading to outflows in the region.
“Furthermore, the rallying equity market may also have diverted investor attention away from gold.”
Asia, meanwhile, captured US$239 million in flows in May, which was the smallest inflow for the region since November 2023. However, the present 15-month streak remains its second longest on record. China has continued to fuel regional demand, capturing inflows of $253 million.
Looking at Australia, total assets under management stood at US$3 billion, with net flows equaling -US$1 million over the month. Holdings stood at some 40.1 tonnes.
In terms of trading volume in May, the WGC noted the average trading volume across global gold markets stood at US$216 billion per day, a 13 per cent decline on April’s figures. However, volumes across markets remained well above the 2023 average of US$163 billion/day.
Trading activities at key exchanges fell by 19 per cent while gold ETF trading volumes averaged a 39 per cent month-on-month decline globally.
‘US dollar peaks good for gold’
The WGC noted that, more broadly, gold posted a third consecutive monthly gain in May, rising by 2 per cent month-to-month to US$2,348/oz.
Looking ahead, it believes “the dollar bull narrative could be running short of arguments”, noting the US dollar rally went into reverse in May, falling for the first time this calendar year as inflation eased.
“The US dollar bull narrative could be running short of arguments, and a dollar peak has historically been good for gold,” the WGC pointed out.
Particularly, it explained that a “no landing” scenario in the US has become more prominent.
“To that end, as expectations reset higher, it will become progressively more challenging for the economy to deliver the upside surprises needed to extend the rise in US yields and the dollar.”
In the case of soft-landing scenario, it expects the US dollar to grow increasingly sensitive to weaker US data particularly as it remains close to the top end of its 52-week range.
Additionally, improved global growth outside the US could temper the dollar performance, the WGC said, pointing to recent data that showed the eurozone grew by 0.3 per cent in the first quarter of this year following five quarters of stagnant or negative growth.
“While gold has largely brushed off the stronger dollar recently as Eastern buyers have shifted their behaviour (buyers in emerging markets appear to be less attentive to the US dollar or Western monetary policy expectations), a weaker dollar going forward could bring back Western investors who are waiting for a trigger,” it observed.
