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Investors opt to shed gold allocations as the commodity hits record highs

By Rhea Nath
4 minute read

The recent hot streak of gold prices has had markets buzzing, but fund managers say there’s a good reason these ETFs have witnessed over $10 million in outflows last month.

Marking another milestone this week, gold crossed US$2,360 an ounce on Tuesday, as geopolitical concerns and uncertainty around rate cuts continued to simmer under the surface.

It “scaled new heights” over the course of March, according to the World Gold Council, which found gold returned 8.1 per cent for the month and 6.5 per cent year-to-date. Assisted by this jump in price, total assets under management rose to US$222 billion, the highest in 21 months.

Betashares’ latest ETF review also touted gold ETFs among the top performers in March.

Outperforming crypto offerings which yielded over 45 per cent last month, the VanEck Gold Miners ETF emerged victorious, delivering a return of 19.4 per cent, closely followed by Betashares’ own Global Gold Miners ETF at 19.3 per cent.

However, despite the individuals funds’ strong performance, ETF outflows over the month of March were limited to selling in commodities, totalling $27 million, with gold contributing $10.1 million and oil a lesser $9.6 million to the overall loss.

Commenting on the performance of commodities in March, Tom Wickenden, investment strategist at Betashares, said this is “not uncommon investor behaviour”. With gold trading at record highs and the price of oil up to over US$80 a barrel, he explained investors are seeking a profit.

“We are likely seeing investors who tactically bought into these commodities at lower levels taking profits on their positions,” Wickenden told InvestorDaily.

“Interestingly, as we often see, the majority of this year’s outflows came well before the current peaks with investors who did sell out, missing out on further upside.”

In its latest market commentary, the World Gold Council also reported that global physically backed gold ETFs witnessed their 10th consecutive monthly outflows in March of US$823 million, though this marked an improvement on outflows recorded a month earlier which reached a high US$2.9 billion.

Collective holdings fell by 14 tonnes to 3,112 tonnes by the end of March, the lowest since February 2020.

However, total AUM in global gold ETFs rose by 8 per cent thanks to a stronger gold price.

Pointing to an unprecedented disconnect between gold prices and global gold ETF flows, the council said: “With the prospect of lower interest rates ahead, the suggestion is that [gold] ETFs have missed the rally and are now under-allocated.

“When assessing gold ETFs as a percentage of total US ETF AUM, we found their percentage share is at the fourth lowest level since inception,” the council continued.

“While past performance does not guarantee future returns, it is worth noting that the last time positioning reached these levels gold embarked on a substantial move higher with considerable support from global gold ETFs.”

Lack of interest in Gold ETFs not crypto related

The World Gold Council rejected recent media reports that the amount of capital flowing into bitcoin ETFs was hurting gold ETFs.

The council argued that outflows from global gold ETFs began long before BTC-ETFs launched and did not accelerate once they had.

In fact, it suggested that over recent weeks, AUM growth in BTC and US gold ETF products has been strongly correlated.

“We view outflows from gold ETFs as speculative rather than structural and inflows into bitcoin ETFs as speculative rather than structural,” the council said.

“We don’t know if we are witnessing a turning point. However, the evidence suggests there are more potential buyers than sellers”.

Similarly, Betashares’ Wickenden flagged that anecdotally, the fund manager is currently seeing a lot of interest in commodity-related ETFs.

“Our own Gold Bullion ETF has bucked the recent trend. After experiencing outflows in January, [it] has brought in $6 million since, while non-currency hedged gold ETFs in collective outflows over the same period.

“Investors may be showing a preference for currency hedged gold exposure at a time when the Australian dollar is trading well below its long-term average to the US and commodities are breaking out – typically a bullish signal for the AUD.”