Global gold ETF flows turn negative in May, North America and Asia lead the pack

Gold ETFs are passively managed schemes investing in bullion.

Global gold exchange-traded funds (ETFs), including from India, saw net outflows of $1.8 billion in May, snapping a five-month inflow streak, a recent note by the World Gold Council (WGC) has said.

The first monthly outflow since November along with a decline in the price of the precious metal led to a 1 percent drop in the assets under management (AUM) of global gold ETFs to $374 billion from the previous month. Collective holdings were down 19 tonnes from April at 3,541 tonnes.

According to WGC, tariff-related policy risk, a rise in inflation expectations (both risk and uncertainty factors) and lagged follow-through from the dollar plunge in April contributed positively. ETF outflows and the strong gold return in April (both momentum factors) were drags on returns in May.

Gold ETFs are passively managed schemes investing in bullion and track the metal price closely.

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Global gold prices ended May 0.7 percent lower at $3,278 amid some intra-month volatility. Year-to-date, gold prices are up 26 percent.

Despite May’s loss, global gold ETF flows remain positive for the year, so far, at $30 billion. Holdings have grown cumulatively by 322 tonnes during the period.

“All regions saw outflows in May except Europe. North America took the largest hit, and Asia reversed the strong momentum it experienced in April. Europe registered mild inflows, while funds in other regions experienced a small loss for the first time in six months,” said WGC.

North America saw net outflows of $1.5 billion in May, the first negative month since January.

The better-than-expected temporary easing of tariffs between the US and China improved investor risk appetite, leading to a rebound in equities but lower safe-haven demand for gold.

Europe experienced mild inflows, adding $225 million during the month. Inflows in France more than offset continued outflows from Germany and the UK.

Closer home, Asia recorded outflows of $489 million. China led outflows as safe-haven demand diminished amid de-escalating trade tensions with the US and subsequent equity rebounds.

India also saw mild outflows of $71 million or 0.6 tonne in May. The country had witnessed outflows during April as well.

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Gold outlook

The WGC note said a decision by US federal courts to block the Trump administration’s sweeping tariffs lit a relief rally in risk assets on May 29. “However, this might only be temporary as several options appear available to the administration to sidestep the judgement,” the council said.

Notwithstanding the temporary setback for Trump’s policies following the US federal court decision, the stagflationary picture continues to develop, it said.

“But the hitherto strong run-up in gold prices makes incremental gains perhaps harder to achieve,” said WGC.

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A federal appeals court temporarily reinstated the most sweeping of the tariffs, a day after the Court of International Trade ruled that President Donald Trump exceeded his authority in imposing the duties and ordered an immediate block on them.

The United States Court of Appeals for the Federal Circuit in Washington said it was pausing the lower court's ruling to consider the government's appeal, and ordered the plaintiffs in the cases to respond by June 5 and the administration by June 9, Reuters has reported.