Demand for gold funds/ETCs varies significantly by region in 2022

While gold demand at the end of last year and in January 2022 was still primarily driven by justified inflation fears in many countries, Russia launched its invasion of Ukraine in February – a startling geopolitical crisis situation that many had long thought impossible. While the outcome and consequences of this war are currently still completely unforeseeable, one thing seems certain: the world has become a different, more uncertain place. This is manifesting, among other things, in the fact that many investors are seeking refuge in gold funds and gold-backed ETCs.

Significant outflows in China and India, inflows in Europe and the US

US and European gold-backed ETFs and ETCs are almost on a par so far this year: according to the World Gold Council, the holdings of US-based gold funds increased by 21.3 tonnes, while European ETCs had grown by 21.4 tonnes by the end of February. This corresponds to increases of 4 per cent in the US and 1.8 per cent in Europe. The situation is quite different in Asia, first and foremost China, followed by India, where investors sold 17.4 tonnes of gold-backed ETF shares, corresponding to an outflow of 12.4 per cent of all Asian gold funds in view of the lower gold holdings compared to Europe and the US. The February edition of the World Gold Council’s “Gold ETF Flows” report sees profit-taking and strategic decisions on the part of institutional investors as the cause for this development.

Trend reversal in the coming months rather unlikely

Presumably, the growing inflationary pressure – the US inflation rate is already at 8 per cent –  and of course the massive geopolitical crisis situation in Europe will ensure a continuation of the gold demand trend that has prevailed so far in 2022. According to the World Gold Council, this is also evidenced by the fact that demand in Europe and the US is currently almost independent of the price development of the precious metal. Also, many investors suspect – possibly rightly – that central banks will not change their monetary policy in the coming months to an extent which would enable them to counter inflationary trends in the short term.