Global gold ETFs see net outflows of $9 billion in 2021, India sees inflows

According to a World Gold Council report, assets under management (AUM) fell 9% in value terms during the year to $209 billion, as net outflows were linked to a 4% contraction in gold prices.

“The gold price rose towards the end of the year on the heels of the fast-spreading Omicron variant, possibly spurring flight-to-quality inflows, but this was not enough to offset losses from early 2021. h. After 1% – when it fell more than 10% – gold was between $1,700/oz and $1,850/oz for most of the year,” said the Market Development Organization for the Gold Industry.

Despite significant outflows for the year, gold ETF holdings remained well above pre-pandemic levels, as they registered a record inflow of around 875 tonnes, or $49 billion, during 2020.

The data also shows that India-based gold ETFs saw inflows of 9.3 tonnes or $595.3 million during the year.

Furthermore, Asian ETFs accounted for the overwhelming majority of global funds, despite some weakness in the second quarter, adding close to $1.5 billion during 2021.

“This is especially true for Chinese-based funds, which make up more than 60% of the total inflows to the sector, which, along with slow economic growth and lower yield expectations, have been fueled by the low price of gold by local investors. Driven by concerns of leverage.” WGC mentioned in the report.

On the other hand, North American outflows have once again stemmed from larger US funds, possibly triggered by the US Federal Reserve (Fed), which is expected to hike its interest rates in 2022 to counter decades-high inflation. Indicates intent while planning to reduce property purchases. at the beginning of the year.

The North American region saw a total fund outflow of 199.5 tonnes or $10.9 billion during 2021.

2022 Outlook

Looking ahead, the WGC believes that gold prices will experience similar dynamics in 2022.

According to the council, higher equity market valuations coupled with the persistence of high inflation, potential new COVID variants and increasing appetite for less liquid assets, may well result in greater market volatility and rising demand for gold as a portfolio hedge. could.

Bullion could see continued support from consumer demand and central bank buying, both of which will continue to be important long-term drivers of performance.

However, the WGC has warned that gold could also face challenges if interest rates rise faster than expected. “In our view, however, despite potential rate hikes, both nominal and real interest rates will remain low from a historical perspective. This, in turn, will lead to a structural change in the composition of investment portfolios and potentially higher-quality gold like gold. Will increase the need for liquid assets,” the WGC wrote.