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Gold ETFs brace for another week of outflows despite recent gains as the US economy continues to rebound

Today's Market analysis on behalf of Samer Hasn Market Analyst and part of the Research Team at


October 27, 2023 ( Newswire) Today, gold is trying to maintain its relatively high levels and is heading to close with gains for the third week in a row. The spot gold price is consolidating within the levels of 1980-1985 dollars per ounce. While gold futures contracts on the COMEX exchange still maintain the level of $1990 per ounce.

While gold's movements today came after a series of numbers from the US economy, the latest of which was the Personal Consumer Spending Price Index numbers for September. The core reading of the index (core PCE) came with a growth of 3.7% on an annual basis, in line with analysts' expectations. We also witnessed a growth of 0.3% during September compared to last August, which is also in line with expectations.

These latest readings, which will be the Fed's first gauge of inflation at a meeting next week, do not appear to have affected markets' expectations of the FOMC keeping interest rates unchanged. At the same time, the current reading means that inflation is still far from the central bank's target, and thus we may expect interest rates to remain stable at their current levels for a long period during the coming year.

In addition, the set of data we saw yesterday reinforced the assumption that interest rates will last longer than expected. The GDP recorded the highest growth rate that we have not seen in nearly two years, at 4.9% during the third quarter compared to the same quarter of last year.

I also believe that the higher-than-expected growth yesterday for durable goods orders during last September reflects the confidence of investors and business owners in the ability of the US economy to recover and avoid recession. When we look deeper into the numbers, we find that we will see a growth of 0.9% for orders for machinery and a growth of 5.2% for communications equipment. In conclusion, the core reading recorded a growth of 0.5% on a monthly basis.

Accordingly, I do not see anything that might support the continued rise of gold at the present time except concerns about the ongoing conflict in the Middle East spiraling out of control to include many countries in the region, which may threaten US interests and disrupt an essential part of the world's energy supplies. While we are witnessing more talk and reports about the possibility of the parties to the conflict moving toward reducing escalation. Though in any case I do not see any intention from those parties or influential parties from other countries to push the conflict beyond its current borders.

Moreover, despite gold's recent gains, major physical gold ETFs are poised to record another week of net negative flows. The iShares Gold Trust (IAU) is heading for its 15th consecutive week of net outflows. As for the largest gold ETF, the SPDR Gold Trust (GLD), it is also heading to record negative net inflows for the second week in a row, while it would have recorded the eighth consecutive week of outflows without the inflow of $940 million on October 20, which pushed the ETF to record positive net flows of $70 million in the week ending October 16.

In total, both funds have recorded negative net flows of more than $5.8 billion year-to-date. See the chart below for the combined net flows of both ETFs:


I believe that the continued outflows from gold ETFs reflect negative investor sentiment around gold, which may hinder the yellow metal from maintaining its current gains for an extended period. The US economy is still strong and showing more signs of recovery, and the positive quarterly results of most corporates for the third quarter helped strengthen this hypothesis.

I also believe that the continuation of interest rates to remain stable at their high levels for a prolonged period, coinciding with the markets' certainty that the Fed has actually finished raising interest rates soon, may lead to more inflows towards bond ETFs, which have already been witnessing positive net flows for the most of them for months, which may increase the pressure on gold. This is because we may witness a tendency for investors to invest their money in return-generating assets while exploiting the current record interest rates, coinciding with these bond ETFs reaching their bottom after a series of sharp declines.

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