The World Gold Council said on Thursday that financially backed exchange-traded Gold ETFs saw inflows for the fourth consecutive month in August due to additions to the holdings of funds listed in North America and Europe.
Gold exchange-traded funds, which store bullion for investors, are a key category of investment demand for the precious metal, which touched a record high of $2531.60 an ounce on August 20 amid bets on the upcoming US interest rate cut.
However, ETFs have seen three consecutive years of outflows amid high global interest rates, and the last four months of inflows have only been able to trim losses so far in the year to a net outflow of 44 metric tons.
The World Gold Council, an industry body that brings together global gold miners, said in a research note that exchange-traded gold funds saw inflows of 28.5 tonnes, or $2.1 billion, in August, bringing their total holdings to 3,182 tonnes.
Rising gold prices and recent inflows pushed total assets under management to a month-end peak of $257.3 billion in August.
WGC estimates that global gold trading volumes in August fell 3.2% month-on-month to $241 billion per day due to lower exchange-based trading activity at COMEX, however average trading volumes in the mysterious Over-the-counter (OTC) market rose 5.9% to $158 billion..
With the price of gold up 21% so far this year and expectations of a U.S. interest rate cut high, speculators increased their overall net long position in COMEX by 17% from July to 917 tones by the end of August, the highest level since February 2020.
Gold Prices Rise on Expectations of Fed Rate Cut
Gold prices rose around 1% on Thursday, recovering from recent lows, as buyers defended key support levels. After recovering from Wednesday’s low of $2,471.91, gold regained the pivot level of $2,501.31, approaching a record high of $2,531.77. The rise in gold prices is due to growing expectations of a more aggressive rate cut cycle by the US Federal Reserve, which traders expect to start this month.
The gold/USD pair is trading at $2,516.19, up $20.65 or +0.83%.
Fed rate cuts fuel gold demand
The primary driver of Thursday’s rally is the growing belief that the Fed will begin its rate-cutting cycle further due to signs of a slowing US economy. Recent data, including the Job Vacancies and Labor Turnover Survey (JOLTS) on Wednesday, showed that job vacancies fell to a three-and-a-half-year low, raising concerns about the strength of the labor market. As a result, traders are now pricing in 57% odds of a 25 basis point rate cut. and a 43% probability of a 50 basis point cut for September
Ole Hansen, head of commodity strategy at Saxo Bank, noted that the global economic slowdown increased downside risks across growth-based commodities, adding further support to gold. As interest rates lower bond yields, gold, which does not offer a return, becomes more attractive to investors.
ETF buying resumes as treasury yields decline
The expectation of a rate cut has also spurred renewed interest in gold-backed ETFs (ETFs). These funds have seen outflows in recent years as investors have preferred US Treasuries, which offered higher yields. Now, with returns expected to fall, ETFs are once again increasing their gold holdings.
Gold rises to $2518 on interest rate cuts and safety requests
Gold renews bullish attack to reach $2518 as the $2490-2495 area attracted strong buying ahead of upcoming initial jobless claims as well as PMI in the services and manufacturing sector during the US trading session .
Gold prices sit at just below all-time highs in August, analysts said in a note, with market conditions poised to push them further given the yellow metal’s role as a geopolitical hedge as a first resort, imminent interest rate cuts by the Fed, and unprecedented demand from central banks., and the risk of inflationary policies in the United States after the election.
Carsten Menke, an analyst at Julius Baer, highlighted that while potential rate cuts by the Fed would keep interest rates in restricted territory, above the neutral rate, this could limit a large wave of buying by Western gold investors. However, gold is still gaining 22% so far this year, recording its strongest performance in a year. 2020. with returns expected to fall, ETFs are once again increasing their gold holdings.
Gold Price Forecast
Due to weak labor market data and high expectations of a rate cut by the Fed, the short-term outlook for gold remains bullish. The deeper interest rate cut cycle will continue to support gold prices, especially if upcoming jobs data confirms the economy is slowing .
As central banks continue to buy gold and safe-haven demand continues, the metal is poised to challenge a record high of $2531.77 in the near term. However, any unexpected strength in the labor market may limit the bullish momentum.
