How does the gold ETF market influences gold prices?

Reading Time: 3 minutes

Gold is a one-of-a-kind asset class. The economic dynamics that influence the price of gold are distinct from those that influence the price of many other asset types, such as stocks, bonds, and real estate. Gold provides an attractive option for investors to diversify their holdings.
ETFs are securities that track the price of gold. You do not own any physical gold when you buy shares in a gold ETF. Gold ETFs are a wonderful way for investors to get into the gold market. Gold ETFs have accumulated significant assets and have become attractive products for investors and traders. They range from funds that continuously follow the price of gold to funds that cover the worldwide gold mining industry.

Gold ETF Inflows by Country

Gold ETF Inflows by Country

Although gold bullion is available 24 hours a day, gold ETFs are only available during stock market hours. The United States is the largest buyer of gold ETFs, followed by Europe. With gold holdings of over 1000 tonnes, the SPDR Gold ETF is the world’s largest gold ETF.

ETF Inflows of Top 5 Funds

ETF Inflows of Top 5 Funds

Although India is second largest consumer of gold, ETF investment is not so popular as compared to western countries. Indians are more inclined towards buying Gold Jewellery rather than investing through Gold ETF. Indian Gold ETF started very late in 2007, which Benchmark Gold ETF (now knowns as Nippon India Gold ETF) launched its first Gold ETF in March 2007. And later, other Fund providers joined the league, but still this company has highest Gold AUM (~12 tonnes) when compared to others. Combined ETF holdings of 13 Gold ETF providers in India is around 33 tonnes (as of May 2021), which is just 1% of the total World Gold ETF holdings

Top 5 Gold ETF Companies in India

(holdings as of 31 March 2021)Top 5 Gold ETF Companies in India

Gold prices have inverse correlation with inflows/outflows in gold ETF. As investment demand through world Gold ETF increases, it appreciates the values of Gold also. And in fact it is coincident indicator of Gold prices and is widely used for forecasting the direction of Gold prices internationally and domestically.

Total World Gold ETF holding with COMEX and Indian Gold prices

Total World Gold ETF holding with COMEX and Indian Gold prices

After Gold prices topped in August 2020, and started its descend, we saw a lot of outflows from Gold ETF for next 5-6 months. Its only month of May, we saw inflows in Gold ETF, which the positive indicator for Gold prices going forward.

Monthly Inflows/Outflows of Gold ETF around the world

Monthly Inflows/Outflows of Gold ETF around the world

Must Read: 5 Modern Ways To Invest In Gold That Prove It Still Pays to Own Gold
Share on
Tags:

Leave a Reply

Your email address will not be published. Required fields are marked *

Fill out this field
Fill out this field
Please enter a valid email address.
You need to agree with the terms to proceed

Menu