(Kitco News) - For the first time in five months, gold-backed exchange-traded funds (ETFs) saw net outflows as volatile investor sentiment took its toll on global financial markets, according to the latest report from the World Gold Council (WGC).
Despite the recent volatility, WGC analysts expect ongoing economic uncertainty—especially related to global trade tensions—to continue supporting gold prices, even as stagflation risks rise.
In its monthly ETF report released Thursday, the WGC said global gold-backed ETFs experienced outflows of 19.1 tonnes, valued at $1.83 billion. These outflows were primarily driven by North American funds as investors reacted to fluctuating tariff threats.
According to the report, 15.6 tonnes of gold, valued at $1.5 billion, flowed out of North American-listed funds.
“The better-than-expected temporary easing of tariffs between the US and China improved investor risk appetite, which led to a strong rebound in equities but reduced safe-haven demand for gold,” the analysts said.
Looking ahead, the WGC warned that the Federal Reserve’s current neutral monetary policy stance could pose a headwind for gold during the summer. However, analysts also noted that these risks may be mitigated by inflation concerns and unsustainable debt levels.
“The market is now expecting higher rates by the end of 2025, leading to rising US Treasury yields and increasing the opportunity cost of holding gold,” the report stated. “Although higher US Treasury yields have historically been negative for gold ETF demand, the current developments don’t necessarily spell bad news. For instance, intensifying stagflation concerns may lead investors to gold, as historically it has performed well during such periods.”
Bucking the global trend, European-listed ETFs saw modest inflows of 1.6 tonnes, valued at $224 million.
The WGC noted that French ETFs led European inflows, as investors sought protection from sluggish economic activity, deteriorating consumer sentiment, and growing concerns over national debt and geopolitical uncertainty.
The biggest surprise in the report came from Asia, where the region posted its first outflows since November 2024. Asian ETFs reported net outflows of 4.8 tonnes, valued at $489 million.
This drawdown follows a month of historic ETF demand in April, during which holdings increased by a record 69.6 tonnes.
Looking forward, the WGC continues to see upside potential for gold, noting that the global trade war and rising tariffs have not yet significantly elevated inflation. Some analysts suggest it could take up to six months for consumers to feel the full impact of the trade conflict.
As inflation erodes real yields and slower growth weighs on equities and cyclical commodities, the WGC said gold could remain one of the few resilient assets in a stagflationary environment.
“But we don’t necessarily have to wait for such an environment to play out,” the analysts said.
“Further analysis suggests that stagflationary expectations are nearly as influential in driving gold’s relative average outperformance—whether we get there or not.”