For years, gold ETF flows almost perfectly correlated to the price of physical gold.
That is, until early 2022 following Russia’s invasion of Ukraine.
A recent report from Goldman Sachs, analyzed by Zerohedge’s Tyler Durden, show a massive disconnection of gold ETF flows and the price of gold as central banks have tripled purchases dating back to 2022.
Recently, the report noted, ETF flows have turned positive following the sustained 30-month downtrend.
Durden speculated that gold prices are now correlating with hedge fund purchases due to the ability of managed money funds to collect and trade on non-public central bank information, which is widely assumed to be skewed as countries are often incentivized to obfuscate purchases.
With ETF flows into gold instruments now turning positive, Durden said it’s “no wonder that gold is hitting new all-time highs day after day.”
Gold ETFs are backed by physical gold, Goldman analyst Lina Thomas notes, meaning rising ETF holdings reduce the physical supply of gold available in the market. Goldman reiterated its price target of $2,700 an ounce by early 2025.
Gold prices opened U.S. trading Tuesday at $2,630.
With gold prices having risen precipitously despite higher interest rates being implemented by most countries in the global economy, Durden speculates that central bank buying has staved off any downside for the metal. Gold prices typically fall under higher interest rates due to its status as a non-yielding asset.
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