Gold-backed exchange-traded funds (ETFs) recorded positive inflows globally in July, reversing two consecutive months of outflows, according to data from the World Gold Council. Every region reported net additions of the metal into gold-backed funds during the month. The turnaround marks a notable shift in Western investor sentiment, as ETF flows — long considered a barometer of institutional and retail gold demand in Europe and North America — had been a drag on overall gold demand for much of the past two years, even as central banks and physical-bar investors continued accumulating the metal.

Led by European funds, gold ETFs reported net inflows of 23.5 tonnes in July, valued at approximately $3 billion. Assets under management (AUM) across gold-backed funds rose 1 percent to $530 billion. ETFs currently hold a combined 4,068 tonnes of gold. Year-to-date, ETFs have added a net 39 tonnes to their collective holdings, valued at $11 billion.

The World Gold Council identified three key factors driving July's turnaround:

• Diversification amid technology-sector volatility
• Selective bargain hunting as gold prices declined
• Policy and geopolitical uncertainty, including an unclear monetary policy outlook and the ongoing war in Iran

Europe Leads the Rebound

European ETFs posted their second-strongest month of inflows this year, adding 17.3 tonnes of gold valued at roughly $2 billion. Funds based in the United Kingdom and Switzerland led the surge.

According to the World Gold Council, European investors appear to have "rebuilt their positions" following a significant selloff in June, as lower prices created buying opportunities.

"This mirrors the pattern seen earlier in the year, when European funds led the rebound following March's sharp U.S.-led outflows, suggesting investors were willing to add exposure after periods of market weakness," the Council noted.

Asia Sees Mixed Results

Asian funds reported a combined increase of 4.8 tonnes in gold holdings, valued at $116 million. Chinese funds led the region as investors sought safe-haven assets. The CSI 300 Stock Index recorded its worst month since January 2016, while falling local yields reduced the opportunity cost of holding gold.

Japanese-listed funds, however, reported outflows as rising local yields diverted investor demand elsewhere. Indian funds recorded modest inflows of $157 million.

North America and Other Regions

North American funds reported inflows of just 0.3 tonnes, valued at $71 million. The World Gold Council characterized this as a "tentative recovery" following two months of significant outflows. North America remains the only region still reporting net gold outflows on a year-to-date basis. The muted U.S. response stands in contrast to stronger European demand, reflecting how interest-rate expectations and dollar strength typically exert a disproportionate influence on North American gold positioning.

Funds in other regions, including Africa and Australia, reported gold inflows of 1 tonne valued at $140 million, with ETFs listed in South Africa and Australia leading the way.

ETFs vs. Physical Gold

Gold ETFs offer a convenient and liquid way to gain exposure to gold prices. Shares can be bought or sold with minimal transaction friction, without the logistical concerns of transporting or storing physical metal. Investors can trade ETF shares for cash or other securities throughout the trading day.

However, ETF ownership does not equate to possessing physical gold. Holders own a paper claim, and there is no guarantee that the fund holds all of its allocated metal, particularly during periods of heavy inflows. In some scenarios, difficulties or delays in obtaining physical delivery have been reported.

Trading Volumes and Market Positioning

Global market liquidity averaged $356 billion per day in July, down 3.5 percent month-on-month. Over-the-counter (OTC) trading volumes also declined by approximately 3.4 percent to $205 billion per day. Despite the pullback, both LBMA trading volumes and Shanghai trading activity remained above their 2025 averages.

Total COMEX long positions dropped modestly by 4.4 percent to 542 tonnes. Managed money appears to be rebuilding its position, with longs adding 11 tonnes. The World Gold Council described the current positioning as "near neutral."

"Gold continues to be weighed down by the effects of the war in the Middle East, which has reinforced inflation risks and supported the dollar and yields, adding to the opportunity-cost headwind facing gold," the Council stated.

Source: GoldSeek