Strong dollar and rising yield extend gold sell-off

Global physically backed gold ETFs suffer 10 consecutive months of outflows

Strong dollar and rising yield extend gold sell-off

Global physically backed gold ETFs are taking a beating after a stronger US dollar and rising yields spark a 5% decline in gold prices. The result: 10 consecutive months of outflows, including losing $1.7 billion in value during February. It represents the longest monthly streak since January 2014, according to the World Gold Council.

Global gold ETFs suffered a $3.4 billion loss in the first two months of 2023. Except for funds in other regions, where collective holdings modestly increased, there were significant outflows of investment.

As the central banks in the region kept delivering disproportionate rate hikes, European funds continued to fuel global outflows. European funds recorded their 10th consecutive monthly outflow in February, losing $1.2 billion, though at a slower rate than January. Again, the majority of the region's outflows came from UK funds, with $740 million in net redemptions. The Invesco Physical Gold ETC (SGLD LN) led the way by losing $474m.

After two months of inflows, North American gold ETFs lost $547 million, marking their first monthly loss in 2023. Investors now expect higher interest rates to last longer as US inflation pressure has suddenly increased. The local demand for gold decreased along with the decline in gold prices. According to ETF Strategy, the iShares Gold Trust (IAU US) saw the largest outflows for the region, and the second-largest globally, shedding $418m.

Moderate outflows of $4 million were seen in Asian-listed funds throughout the month. Outflows from funds listed in China exceeded inflows from Japan. Another $83 million influx of funds was seen in the other areas in February, mostly due to Turkey.

According to the Council, gold ETFs assets under management globally declined by 6% during February, ending the month at approximately $200 billion. Going forward, the precious metal’s performance in 2023 is likely to be driven primarily by the interplay between inflation and central bank intervention. A highly uncertain outlook remains for the year, leaving room for the possibility of extreme outcomes.