Gold Funds Resume Buying... $3 Billion in July

Investors' money has returned to gold once again. Global gold ETFs attracted nearly $3 billion in July, following two consecutive months of capital outflows.

Holdings of these funds in the yellow metal rose by 23 tons, bringing their total holdings to 4,068 tons.

And why does this figure matter? Because exchange-traded funds are the easiest way for investors to buy gold without physically holding it. When money flows in, they are forced to buy and store physical gold, creating direct demand added to the market. When money flows out, the exact opposite happens.

However, Morgan Stanley believes that this improvement alone is not enough. In its estimation, gold will find it difficult to reach $5,200 per ounce during the second half of the year, unless flows into these funds become stronger and more sustained.

The bottom line is that flows have returned to positive territory, but they remain too weak to push gold to new record highs. The direction has changed, but the speed has not yet.

Key terms explained:

Exchange-traded funds (ETFs): Listed funds that buy physical gold on behalf of investors.

Inflows and outflows: The net money entering or leaving funds, which translates directly into buying or selling physical gold.

Holdings: The quantity of gold funds own and store on behalf of investors.

Ounce: A unit of weight equal to about 31.1 grams, used to price gold globally.

Physical demand: Actual purchases of the metal added to the market, as distinct from speculation in futures.