Gold ETFs See Strong Inflows Driven by European and Asian Demand Amid Inflation Fears

Global gold ETFs registered inflows despite inflationary risks, with gold prices hovering near 4,700 per ounce at the start of the week. Analysts remain optimistic about a price recovery in the second half of the year due to sustained investment demand, evidenced by global gold-backed ETF inflows in April.

According to the World Gold Council’s latest report, global ETFs saw a net intake of 45 tonnes of gold, valued at $6.575 billion last month, bouncing back from March’s 84.3-tonne outflow. Global gold reserves consequently rose to 4,137 tonnes, near the all-time high of 4,176 tonnes set in February. European ETFs led the April inflows, acquiring nearly 27 tonnes ($3.7 billion), primarily driven by the UK, Switzerland, and Germany.

These positive flows seem linked to escalating geopolitical and geo-economic risks, specifically concerns over inflation resulting from a prolonged conflict in Iran and associated energy price pressures. North American funds also saw inflows, adding 6.1 tonnes ($1 billion). Despite improved Western investment demand, WGC analysts caution that the market remains vulnerable due to the ongoing conflict in the Middle East, which has caused a global energy supply shock, fueling oil price hikes and reviving inflation fears.

Higher inflation could prompt central banks to adopt tighter monetary policies, increasing interest rates and the opportunity cost of holding non-yielding gold. Nevertheless, WGC analysts maintain that the long-term upward trend for gold remains intact, awaiting a catalyst for another bull rally. In the short term, gold faces technical vulnerabilities, waning expectations for rate cuts, and the market viewing the current shock as temporary, suggesting a potentially weak period without a new catalyst.

While Western demand might stay volatile, Asian investors continue strong engagement with precious metals. Asian gold ETFs recorded inflows exceeding 11 tonnes ($1.8 billion), marking the eighth consecutive month of positive flows for the region, with year-to-date inflows projected to surpass last year’s record. China was a key driver, with Hong Kong SAR funds seeing a record $732 million inflow, supported by new product launches, while mainland China ETFs continued attracting funds amidst geopolitical tensions, falling yields, and ongoing official sector gold purchase narratives.