After a strong start to the first quarter, investment demand for gold-backed exchange-traded funds began to wane last month, according to the latest data provided by the World Gold Council, as investors began to prepare for an aggressive tightening of the Federal Reserve's monetary policy.
The published WGC report states that 43 tonnes of gold entered the paper ETF market in April. The inflow increased total global holdings to 3,869 tonnes, worth $238 billion. Total holdings are just 1% below the all-time high of 3,922t in November 2020.
Despite healthy investment demand, gold prices ended last month with a 2% drop.
Looking at the regional gold markets, last month Europe saw the highest investment demand for the precious metal. European-listed funds received an inflow of 26 tonnes in April, pushing regional holdings to a new record high of 1,692 tonnes.
Analysts say inflows were concentrated in the UK, Germany and France, all reaching record levels of investment within a month. Funds registered in Switzerland experienced a slight outflow.
Also in April, funds registered in North America received 18 tonnes of inflow. While Asian funds reported a 1-tonne outflow last month.
Although investment demand for gold has been stable since the beginning of the year, some analysts note that the Federal Reserve's monetary policy is beginning to put pressure on sentiment. Gold ETFs reportedly posted their first outflow last week.
Last week, the Fed raised interest rates by 50 basis points, the biggest increase in 22 years. Federal Reserve Chairman Jerome Powell dismissed market expectations for a 75 basis point rise; however, the central bank signaled the possibility of two more moves of 50 basis points.
According to WGC senior analyst Adam Perlaky, gold prices are still trending higher even as interest rates rise. Adding that gold investors should look out for the US dollar, which is trading at its highest level in nearly 20 years. Noting that the dollar could have the biggest impact on the precious metal.
