Global physically-backed gold exchange-traded funds (ETFs) kicked off the year with net outflows of $1.6-billion in January and a 26 t (0.8%) decline in total holdings to 3 446 t, data from industry organisation the World Gold Council (WGC) shows.

While the gold price witnessed its strongest January in a decade, registering a gain of 6.1%, gold ETF outflows in Europe and Asia dwarfed positive demand in North America and the Other region, the council reports.

Overall, collective gold ETF assets under management (AUM) increased by 5.3% to $213-billion by the end of the month, aided by the gold price increase despite outflows in tonnage terms.

North American funds likely benefited from gold’s strong price performance as the dollar weakened and interest rates stabilised, leading to $572-million of net inflows.

In addition, positioning in the gold ETF options market may have been another contributor as most inflows occurred around monthly gold ETF options’ expiry date, the WGC points out. 

It says that, in contrast, European funds saw outflows of $2.1-billion in January, extending its losing streak to nine months.

Rising rates as European central banks catch up to the US Federal Reserve (Fed), currency appreciation and strong local stock market performances may have diverted investors' attention away from gold ETFs, the council avers.

This was particularly evident in the UK, where gold ETFs accounted for the lion’s share of the region’s negative flows.

In Asia, Chinese funds witnessed outflows of $200-million during January.

The CSI300 stock index’s 7% jump during the month and an appreciating renminbi against the dollar likely weakened investors’ appetite towards gold, posits the council.

Lastly, funds in the Other region registered positive flows of $104-million, the largest monthly tonnage increase since January 2021, mainly contributed by Turkey.

The price rally served as a broader catalyst for market sentiment, as gold’s global average daily trading volumes increased by 35% from December, settling at $154-billion a day in January, the council notes.

The gold price rise during the month may have been a key contributor, it says.

Additionally, average daily trading volumes of exchange-traded gold derivatives jumped by 58% month-on-month in January, followed by a 23% increase in the over-the-counter market and a 18% rise in gold ETFs.

“January served as the latest example that central bank policy continues to dictate investment appetite. While North American funds registered their second consecutive month amid rate stabilisation and a weakening dollar, European funds continued a nine-month run of outflows, as European central banks are caught in a rate catch-up with the Fed.

“Looking forward, it’s interesting to note that net longs have historically led changes in North American ETF holdings by up to two weeks on average, suggesting a sustained rise in net longs could conceivably drive an ETF rally,” comments WGC global research head Juan Carlos Artigas.

“Gold’s 6.1% return in January helped the asset finish the month at $1 924/oz, positioning it close to the top of the currency return table. The price performance can primarily be attributed to a weaker dollar, though record central bank purchases may have driven gold’s return value as well.

“I also believe recent gold market activity could signal renewed investor interest, as gold’s average daily trading volumes increased by 35% month-on-month in January and average daily trading volumes of exchange-traded gold derivatives jumped even higher, by 58%, over the course of the month,” he adds.