PremiumThe World Gold Council noted that in the short term, interest rates in key markets are set to continue rising until central banks – most importantly the Fed – bring inflation closer to target
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NEW DELHI: Global gold exchange-traded funds (ETFs) recorded net outflows of 51 tonne, or worth $2.9 billion, in August, in line with price performance of the commodity, according to according to a World Gold Council (WGC) report.
According to the report, year-to-date (YTD) global inflows are 102 tonne, or worth $7.5 billion, with total holdings at 3,651 tonnes or $202 billion, up 3.6% on the year.
Chinese funds dominated outflows in August and remains the country with the most outflows so far this year.
Indian gold ETFs, on the other hand, witnessed minor net outflows during the month (0.1 tonne), as investors rotated into other asset classes such as equities (BSE Sensex, +3.6%) and bonds (Indian 10-year government bonds, +1.2%).
A fresh two-decade high in the US dollar coupled with rising interest rates proved to be headwinds for gold prices.
Gold failed to break through the $1,800 per ounce resistance level before succumbing to the pressure following stern hawkish warnings from the Fed. The metal finished August down 2% at $1,716, and is down by 5% on year.
The report also highlighted that gold average daily trading volumes fell significantly in August – as is common in the summer months - to $109 billion, and below 2021’s average of $131 billion.
“Futures exchange volumes were the primary culprit, as their volumes fell 57% MoM. The latest Commitment of Traders (COT) report for Comex continues to show low net long positioning, but the managed money net longs did increase from a July net short position to +94 times,“ the report said.
WGC said that gold’s price fall in August came against a backdrop of continued higher yields and a stronger US dollar as the Fed reaffirmed its commitment to further tightening.
In terms of sales, Indian retail demand bounced back in August following a seasonally quiet June and July.
“Jewellery demand picked up ahead of the wedding season in South and North India. A mid-month local gold price correction also acted as a catalyst, supporting both wedding and regular purchases. With a recovery in retail activity, wholesale demand improved and the discount in the local market narrowed to $5-6/oz by the end of the month, compared to a discount of $10-12/oz at the end of July," the report noted.
WGC noted that in the short term, interest rates in key markets are set to continue rising until central banks – most importantly the Fed – bring inflation closer to target.
“The Fed will update its monetary policy (dot plot) forecast in September, providing more detail on how policymakers view the future path of interest rates. The European Central Bank and Bank of England, both similarly battling multi-decade high inflation, also have policy meetings in September where further rate hikes are expected. This will likely keep the pressure on gold,“ it said.