Gold ETFs took in a record $31bn in Q3 as prices fell

Key points

• Global gold ETFs took in $10bn in September and a record $31bn over the third quarter, World Gold Council data show
• Holdings rose 67 tonnes in September to a record 4,256 tonnes
• Hedge funds cut their net futures position by 84 tonnes over the same month
• Gold fell 8.5% in September on the council's figures, ending at $4,176

Investors poured money into gold-backed exchange-traded funds in September even as the price fell hard, the World Gold Council said in its latest monthly report. Global funds took in about $10bn during the month, capping a third quarter in which inflows reached roughly $31bn, the largest on record.

Why it matters: ETF buyers tend to hold for months or years, while futures traders can flip in days. When long-term money keeps buying into a falling market, it can put a floor under prices once the fast money has finished selling.

The numbers

Holdings in gold-backed ETFs rose by 67 tonnes in September to a record 4,256 tonnes, according to the council. Every region added gold, with North American funds leading, followed by Europe and then Asia.

The value of those holdings went the other way. Total assets under management fell 7% on the month to $574bn, because the drop in price outweighed the extra metal.

Source: World Gold Council, as reported by The Northern Miner.

Two sets of investors, two directions

The futures market told a different story. Net positions held by managed money, the category that covers hedge funds and other speculators, fell by about $12bn, or 84 tonnes. Total spreading positions dropped by $22bn.

Saxo's weekly positioning review gives a similar picture. It said hedge funds cut their gold longs by 2.7 million ounces during September, roughly the same 84 tonnes, while ETF holdings climbed to a four-year high on its measure.

Put simply: speculators who trade on short-term signals such as yields and the dollar were selling, and investors who use gold as a portfolio hedge were buying.

Why ETF buyers kept coming

It points to a shift in what investors want gold for.

The US 10-year Treasury yield rose 53 basis points to 5.3% in September and the dollar index gained 2%. Those moves are normally bad for gold. But they also signal stress in the bond market, and some investors are buying gold as protection against exactly that.

The UK stood out. UK-listed funds attracted $7.5bn in the third quarter, their strongest three months on record, with inflows in 12 of the 13 weeks to 25 September.

The biggest funds

The largest US fund, SPDR Gold Shares (GLD), had about $145.2bn in assets on 27 September, according to globalgoldprices.com's ETF table. iShares Gold Trust (IAU) held about $63.8bn and SPDR Gold MiniShares (GLDM) about $31.3bn.

Those three funds alone hold well over $200bn of gold between them.

Central banks are still buyers too

Official buyers add a third layer of demand. The site's reserves table, drawn from council data, shows Poland added 51 tonnes in the second quarter, China 33 tonnes, Uzbekistan 16 tonnes and Kazakhstan 15 tonnes.

China's central bank has kept adding through the summer. The council said its official holdings had risen for 22 straight months by the end of August, reaching 2,387 tonnes.

What it means for the price

ETF inflows did not stop gold falling in September. Since then, spot gold has slipped further, to $4,104 at 19:50 UTC on 7 October in globalgoldprices.com data.

The question for October is which group runs out of steam first. If speculators have mostly finished selling, steady ETF and central bank buying could start to show up in the price. If yields keep rising, the futures market may keep the upper hand for a while yet.