Gold Prices Surge Amid Increased ETF Inflows

By Ashitha Shivaprasad

(Reuters) – Inflows into gold exchange-traded funds (ETFs), particularly from Western investors, are expected to rise in the coming months, providing additional positive stimulus for record-high bullion prices, analysts say.

Gold prices have surged by approximately 27% this year, surpassing $2,600 per ounce, benefitting from looser central bank monetary policies and geopolitical tensions.

Interest rate cuts in the U.S., Europe, and China have generated bullish sentiment among investors, with many anticipating further gains and even potential record prices of $3,000.

ETFs allow investors to gain exposure to gold without direct ownership, and increased holdings can significantly influence prices since they depend on the physical commodity.

Increased inflows are anticipated to lower the supply of gold in the market, further boosting prices.

Suki Cooper, an analyst at Standard Chartered, stated, “Now that the rate-cutting cycle has commenced, we believe ETF inflows are likely to accelerate, supporting the next leg higher in gold.”

Recent data from the World Gold Council (WGC) shows that global gold ETFs saw inflows of 28.5 tonnes, or $2.1 billion, in August, with Western funds contributing the majority.

For North America, inflows amounted to 17.2 tonnes or $1.4 billion last month. Softer U.S. economic data, dovish comments from the Federal Reserve, declining dollar and yields, and reduced opportunity costs have driven these inflows.

After experiencing three consecutive years of outflows due to soaring global interest rates, gold ETFs have seen positive inflows over the last four months, reducing year-to-date net outflows to 44 metric tons.

Last week, the Federal Reserve initiated a series of anticipated interest rate cuts with a notable half-percentage-point reduction. The European Central Bank and China’s central bank have also announced rate cuts and other monetary measures to stimulate their economies.

Major banks including J.P. Morgan, Goldman Sachs, Citi, and UBS continue to express optimism about gold, projecting that ETF holdings will increase and prices will rise.

Goldman Sachs noted, “Fed cuts are poised to bring Western capital back into gold ETFs.”

J.P. Morgan highlighted retail-focused ETF participation as essential for a sustained gold rally, forecasting prices could peak at $2,850 by 2025.

Spot gold reached a record of $2,639.95 per ounce recently due to expectations of further monetary easing and ongoing geopolitical tensions. Lower interest rates diminish the opportunity cost of holding non-yielding bullion, making it a safe asset amid instability.

Ole Hansen, head of commodity strategy at Saxo Bank, pointed out, “The current ETF demand foundation stems from falling rates, but it raises the question of whether investors will buy at such high prices.”