Asia continued its streak of attracting gold investments, extending its inflow momentum to 17 consecutive months with a USD 438 million influx in July, according to World Gold Council report.
India emerged as the frontrunner in these inflows, after the reduction in gold import duty to 6 per cent from 15 per cent following the announcement in the Union Budget.
As of July 23, India’s import duty on gold was reduced to 6 per cent from 15 per cent. This change has impacted the gold market, contributing to a strong year-to-date (y-t-d) performance.
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In July, gold prices reached Rs 65,314 per 10 grams, marking a 4.5 per cent return for the month and a 17.5 per cent y-t-d return. This robust performance has been a major factor driving inflows into Indian gold ETFs, as investors capitalized on the favorable market conditions.
These measures have made the investment landscape for gold Exchange Traded Funds (ETFs) more equitable and attractive, further enhancing the allure of gold as an investment. Additionally, the strong performance of gold in the local currency added to the momentum, making it a preferred asset class for Indian investors.
Following a slight dip in June, gold staged a recovery in July, closing the month 4 per cent higher at USD 2,426 per ounce. The precious metal even hit an all-time high of USD 2,480 per ounce mid-month before experiencing a modest decline towards the end.
This surge was primarily driven by lower 10-year Treasury yields and a weaker US dollar, according to the Gold Return Attribution Model (GRAM). However, the main drag came from the Commodity Exchange (COMEX) futures market, where an increase in open interest did not fully match the rise in net longs, leading to a decrease in the futures market ratio.
The gold market also saw a spike in implied equity volatility (VIX) early in August, triggered by a combination of factors including a Bank of Japan interest rate hike, de-levering in global markets, and weaker-than-expected US employment data. While some of the losses have been recouped, a return to pre-selloff levels may take time.
Global gold ETFs experienced their strongest month since April 2022, attracting USD 3.7 billion in July, marking the third consecutive month of net inflows. All regions saw positive flows, with Western funds leading the charge.
The combination of strong inflows and a 4 per cent increase in the gold price pushed global gold ETFs’ total assets under management (AUM) to a new month-end peak of USD 246 billion. Collective holdings also rebounded, increasing by 48 tons to reach 3,154 tons, the highest level since January.
Despite the slowdown earlier in the year, Asia has been a standout performer, recording inflows of USD 3.6 billion year-to-date, significantly outpacing other regions. Supported by record-breaking inflows and a strong gold price, the total AUM of Asian gold funds reached an all-time high of USD 15 billion, with collective holdings increasing by 47 tons.
Gold trading volumes surged across all markets in July, averaging USD 250 billion per day–a 27 per cent increase month-over-month and well above the 2023 average of USD 163 billion per day.
The rise in trading volumes was driven by stronger activity in the London Bullion Market Association (LBMA) and a 51 per cent month-over-month increase in volumes across major exchanges, with COMEX leading the way. Trading activities of global gold ETFs also rose, increasing by 9.3 per cent month-over-month, primarily due to North American funds.
As gold enters August, it traditionally benefits from seasonal tailwinds, particularly from weaker bond yields. However, several factors could impact its performance.
Market sentiment has become increasingly dovish following weak US economic data. However, the Federal Reserve’s cautious approach ahead of elections may pose a downside risk to gold if the Fed’s language does not align with market expectations.
The shifting dynamics in the US political arena, particularly with the upcoming Democratic National Convention, could have implications for gold. Both major parties are expected to maintain gold-friendly policies.
A potential market sell-off driven by disappointing Q2 earnings from US tech giants could further support gold, as it has so far this year.
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(Except for the headline, this story has not been edited by Newsx staff and is published from a syndicated feed.)
