Assets of exchange-traded funds investing in gold fell to 2,691.88 tons

The total assets of exchange-traded funds investing in gold fell to their lowest level since February 2020, reaching 2.69 thousand tons. Interest in the metal is declining amid high yields on US Treasury bonds and the return of the gold price to the level of $2,000 per troy ounce. However, with further aggravation of the situation in the Middle East, interest in the traditional defensive asset on the part of speculators may increase, portfolio managers do not rule out.

According to Bloomberg, in the first two days of this week, the assets of exchange-traded funds (ETFs) investing in gold decreased by 5.3 tons, to 2,691.88 tons. This is close to the minimum since February 2020. The decline in assets continues for the fifth month in a row, and during this time they have decreased by almost 240 tons, and only at the beginning assets decreased by more than 100 tons.

Data from Emerging Portfolio Fund Research (EPFR) also speaks of continued metal sales. According to Kommersant’s estimates, based on a Bank of America report (taking into account EPFR data), for the week ending October 18, the volume of funds withdrawn from gold funds amounted to $1.1 billion, since the beginning of the month – almost $3.2 billion. Overall, continuous The outflow of funds from such funds has continued for more than five months, which is the longest period since 2014.

In the context of the Federal Reserve’s tight monetary policy, managers are more willing to purchase government bonds whose yields are at multi-year highs. On Monday, the yield on 10-year US Treasuries reached 5% per annum for the first time since the summer of 2007. On Wednesday, rates stabilized around 4.915% per annum, having added 34 basis points since the beginning of the month. “During a period of growth in real rates in the United States (the difference between the nominal rate and inflation), gold becomes less interesting as an asset that can effectively protect against inflation,” notes Konstantin Asaturov, director of the equity department at Sistema Capital Management Company.

Interest in the metal was not supported even by the increase in its value in recent weeks amid the crisis in the Middle East. Last Friday, according to Investing.com, gold prices on the spot market reached a five-month high of $1,997 per troy ounce. This week, prices have adjusted to $1,980 per ounce, but even taking into account the decline, they are 9% higher than the values ​​at the beginning of the month, that is, the period preceding the start of active hostilities between Israel and the Hamas movement. Investment Director of Era Investment Management Company Ivan Lavrinenko draws attention to the fact that the decrease in the volume of ETF assets speaks only of the operations of financial speculators, which form only a part of global demand, albeit a significant one. “The actions of speculators are easily explained – a fairly long sideways trend has taught us to sell when approaching resistance levels,” notes Mr. Lavrinenko.

However, the behavior of speculators may quickly change against the backdrop of a possible deterioration of the situation in the Middle East. “The degree of uncertainty is very high, and it is possible that after some time the situation may completely turn around,” notes Konstantin Asaturov. Sovcombank chief analyst Mikhail Vasiliev, in the base scenario, expects prices in the range of $1950–2050 per ounce over the horizon of several months, updating the historical maximum next year and moving quotes to the range of $2200–2300 per ounce. “The completion of the cycle of tightening the Fed’s monetary policy may weaken the position of the dollar on the world market and lead to a decrease in US government bond yields, which is positive for gold,” explains Mr. Vasiliev.

Global gold price dynamics have a limited impact on metal prices in Russia. On Wednesday, at stock exchange trading, the precious metal fell in price to 5,795 rubles. per gram, having lost 2.8% in five days. The determining influence is the dynamics of the dollar exchange rate, which, after ten months of almost continuous growth, began to lose ground. According to the results of trading on Wednesday, the exchange rate was 93.33 rubles/$, having lost more than 4 rubles over the week. According to Mikhail Vasiliev, by the end of the year the dollar exchange rate will remain in the range of 94–98 rubles/$. This means that if world gold prices increase, the effect will be enhanced due to the weakening of the ruble.

Vitaly Gaidaev