Inflows into gold exchange-traded funds (ETFs), particularly from Western investors, are expected to rise in the coming months, further fueling the already record-high prices of gold, which have surged approximately 27% this year to exceed $2,600 per ounce. Analysts attribute this increase to looser central bank monetary policies and ongoing geopolitical tensions.
The current interest rate cutting cycles in the U.S., Europe, and China have heightened bullish sentiment among investors, with some speculating that gold prices could reach a milestone of $3,000 per ounce. ETFs provide a way for investors to gain exposure to gold without taking physical delivery, making any increase in holdings significant for market prices, as these funds are backed by the actual commodity.
As inflows increase, the supply of gold available in the market diminishes, which is likely to drive prices even higher. Standard Chartered analyst Suki Cooper noted that the initiation of the rate-cutting cycle is expected to accelerate ETF inflows, supporting a further rise in gold prices.
In August, global gold ETFs experienced inflows of 28.5 tonnes, valued at $2.1 billion, with Western funds contributing significantly. North America alone saw inflows of 17.2 tonnes or $1.4 billion, driven by softer U.S. economic data, dovish Federal Reserve comments, and declines in the dollar and yields.
This shift comes after three consecutive years of outflows from gold ETFs amid high global interest rates. The recent four months of inflows have only slightly reduced the year-to-date net outflow to 44 metric tons.
Following a larger-than-usual half-percentage-point interest rate cut by the Federal Reserve, and similar cuts by the European Central Bank and China’s central bank, major banks like J.P. Morgan, Goldman Sachs, Citi, and UBS have reiterated their bullish outlook on gold, predicting further price increases and rising ETF holdings.
Spot gold recently touched a record high of $2,639.95 per ounce, driven by expectations of continued monetary policy easing and geopolitical uncertainties. Lower interest rates reduce the opportunity cost of holding gold, which is viewed as a safe asset during times of turmoil.
However, questions remain about whether investors are willing to buy at these elevated prices, as noted by Ole Hansen, head of commodity strategy at Saxo Bank.