Retail investors pile back into gold ETFs, betting prices have bottomed

"My gold ETF holdings are probably down about 30 percent right now … but I think the crash has hit rock bottom, so I'm actually increasing my regular investment contributions. It still stings when I look at the numbers, but I believe gold will bounce back soon."

That is how a worker in their 30s, identified only by the surname Lee, described their thinking amid one of the sharpest gold selloffs in recent memory.

International gold prices, which had been rising at a pace widely described as extraordinary, have plunged roughly 30 percent from their early-year highs. Yet retail investors have been piling back into gold-linked ETFs since late last month, exchange data show.

According to Korea Exchange data released Wednesday, retail investors net purchased 2.4 billion won ($1.79 million) worth of the ACE KRX Gold Spot ETF in the last week of October (Oct. 26–30), Yonhap reported.

On a weekly basis, retail investors had net purchased 6.4 billion won of the same ETF in the first week of last month (Oct. 1–8), before swinging to net selling of 18.4 billion won in the Oct. 12–16 period and 9.4 billion won in the Oct. 19–23 period.

A separate gold spot ETF, the TIGER KRX Gold Spot, shows retail net buying returning even earlier.

Retail investors net purchased 5.8 billion won of that ETF in the Oct. 1–8 period, then net sold 12.9 billion won in the Oct. 12–16 week. They swung back to net buying of 2 billion won in the Oct. 19–23 week and continued buying, adding 1.2 billion won in the Oct. 26–30 period.

So far this month, retail investors net purchased 1.2 billion won of the ACE KRX Gold Spot ETF and 1.6 billion won of the TIGER KRX Gold Spot ETF in the Monday–Tuesday period.

International gold prices have been on a steep downward trajectory since the start of the year.

Gold futures stood at $4,186.70 per ounce on Sept. 30 and fell to $3,898.90 on Friday — a drop of 6.9 percent in a single month. Compared with the all-time intraday high of $5,626.80 reached on Jan. 29, prices have plummeted 30.7 percent.

The renewed flow of money into gold ETFs appears to reflect a growing belief among investors that prices have fallen as far as they are likely to go.

China's central bank buys gold for 23rd consecutive month

Adding to the backdrop, China's central bank has also been expanding its gold reserves, drawing attention from market watchers.

According to Reuters, the People's Bank of China said its gold reserves stood at 77.47 million ounces at the end of September, Yonhap reported on Oct. 7.

That was up 740,000 ounces from 76.73 million ounces at the end of August.

China has now consistently added to its gold holdings for 23 consecutive months through the end of September.

Gold prices fell more than 6 percent over September. The decline also eroded the value of China's gold reserves, which shrank from $350.08 billion at the end of August to $323.52 billion at the end of September.

China appears to be consistently raising its gold allocation as part of a broader effort to reduce its dependence on US dollar-denominated assets and diversify its holdings.

yul@heraldcorp.com