Despite Fed Pressure, Investors Continue Buying Gold Funds

Physically backed gold bullion funds continued to record inflows for the tenth consecutive week, despite the pressure exerted by tight US monetary policy on the yellow metal, signaling that a portion of investors is betting on gold for the long term.

According to flow data, investors in the United States sold $683 million worth of assets the previous week, but buying from the UK, Switzerland, Canada, and China offset this outflow and kept net flows in positive territory. This divergence indicates that the center of gravity for gold fund demand is shifting outside the US.

On the official purchasing front, China's central bank added more than 20 metric tons to its reserves in August, marking the largest monthly increase in nearly three years, continuing its policy of boosting gold holdings. Poland also continued to buy gold at a nearly steady rate, a trend becoming increasingly widespread among central banks in emerging economies.

These inflows come after a difficult month for gold, as it lost about 6% of its value in September while the yield on 10-year US Treasury bonds approached 5.3%. However, continued purchasing by central banks and index funds means that institutional demand remains a key pillar for the market, even during periods of price declines.

What Do These Terms Mean?

Gold ETFs: Investment funds traded on stock exchanges like stocks that track the price of gold, with each share backed by physically held gold bullion.

Inflows: The net money entering a fund as a result of investors purchasing new shares, serving as an indicator of demand for gold.

Gold Reserves: The amount of gold held by a central bank as part of a country's assets, used to protect currency value and handle crises.

Bond Yield: The return on investment in a bond, against which investors compare their yield from gold—which pays no interest—meaning higher yields put downward pressure on prices.