Since October, Wang Lixin, CEO of the World Gold Council in China, has received many inquiries from European and American friends - should I buy a gold ETF (exchange traded open-end index fund)?

This made Wang Lixin curious: European and American investors have always adopted the investment strategy of "chasing the rise and killing the fall" for gold ETFs - buying when the gold price rises, and selling when the gold price falls. Now facing a pullback in gold prices, have they started to 'reverse invest'?

On November 3rd, the World Gold Council released the "Global Gold Demand Trends for Q3 2026", which showed that the net inflow of funds from global gold ETFs reached $31 billion, setting a new quarterly record. As a result, the gold holdings of gold ETFs in the third quarter increased by 211 tons month on month, pushing the total holdings of gold ETFs to 4256 tons, setting a new record.

Among them, European and American investors have become key drivers. In the third quarter, net inflows of funds from European, British, and American investors reached approximately $13.5 billion, $7.7 billion, and $7.3 billion, respectively.

Jia Shuchang, the head of Asia Pacific research at the World Gold Council, told Economic Observer reporters that it is indeed "abnormal" for European and American investors to suddenly flock to gold ETFs during the period of falling gold prices. After all, in the current situation where high energy prices are causing central banks in Europe and the United States to tighten monetary policies, the rise in real interest rates in Europe and the United States is not conducive to the rise of gold prices.

Our monitoring data shows that during the continued pullback of gold prices in October, European and American investors remained major buyers of global gold ETFs. ”Jia Shuchang said. Throughout October, global gold ETFs achieved a net inflow of $2.7 billion, with European investors buying a net of $1.8 billion.

The more it falls, the more it buys

Zhou Feng works at a US securities firm and has over 5 years of experience in gold ETF brokerage business.

In his impression, in the past, European and American investors were keen on chasing the rise and killing the fall in gold investment.

Many European and American clients bluntly say that gold ETFs are trading tools that bet on the rise and fall of gold prices to make profits. Gold assets do not generate interest, so there is no need to treat gold ETFs as long-term holding underlying assets. ”Zhou Feng said.

Since the third quarter, Zhou Feng has felt a shift in this situation. In the third quarter, more than 30 European and American investment institutions served by Zhou Feng increased the allocation of gold ETFs in their investment portfolios from 0% to 5%. In October, this proportion further increased by over 2 percentage points.

Since September, during the period when the international spot gold price fell from $4700/ounce to $4100/ounce, European and American investors not only did not reduce their positions and stop losses, but also bought more and more as the price fell.

Zhou Feng once suggested that European and American investment institutions should stop losses and leave in a timely manner, but they replied that they would no longer bet on the rise or fall of gold prices for profit this time, but planned to hold for a longer period of time.

Several European and American investment institutions have told Zhou Feng that they do not expect the gold price to significantly rebound in the near future, as the expectation of interest rate hikes by European and American central banks drives up real interest rates. But currently, they do have an urgent need for high-end gold ETFs.

Jia Shuchang told reporters that the influx of European and American investors into gold ETFs began in August. The global gold price rebounded from $4100/ounce to $4700/ounce that month, attracting European and American investors to invest over $15 billion in gold ETFs. However, since September, the gold price has rapidly retraced all the gains from August, while European and American investors have changed their previous style of reducing their holdings when the gold price falls. Instead, they continued to net buy over $8 billion worth of gold ETFs from September to October.

Hedge Potential Risks

Since October, several asset allocation department heads from European and American asset management institutions have told Zhou Feng that they urgently need a new asset to hedge against the increased risk of current fluctuations in European and American stock and bond prices.

The head of the asset allocation department of a US family office told Zhou Feng that Wall Street investment institutions have always followed a "60/40" asset allocation strategy, with 60% of funds invested in the stock market and 40% in the bond market, in order to hedge the price volatility risk between stocks and bonds. If the stock market experiences severe fluctuations, a 40% bond investment ratio can help provide a "protective cushion" for the overall net asset value of the investment portfolio to fluctuate steadily.

Since the third quarter, both European and American stock and bond prices have experienced increased volatility. Among them, the expectation of monetary policy tightening of the Federal Reserve and AI (artificial intelligence) large enterprises compete to issue bonds to "rush for money", resulting in the rapid rise in the yield of European and American treasury bond bonds; The renewed suspense of the US Iran war and high energy prices have led to the "ups and downs" of the European and American stock markets, with fluctuations greater than before.

This has made many European and American investment institutions realize that the seemingly "safe" "60/40" asset allocation strategy not only fails to achieve risk hedging effects, but also faces new investment risks - once the stock and bond prices drop synchronously, it will drag down the net asset value of the entire investment portfolio beyond expectations.

As a result, gold, which has experienced a significant price correction, quickly became a new choice for safe haven allocation in the eyes of European and American investment institutions.

Zhou Feng said that European and American investment institutions choose to continue investing in gold ETFs because they believe that there is limited room for further decline in gold prices after falling from the historical high of $5598/ounce at the beginning of the year to around $4100/ounce, and they already have a high "protective cushion" effect.

Jia Shuchang analyzed the inflow composition of mainstream gold ETF products in Europe and America, and found that over 50% of the funds came from local investment institutions.

There are many factors that influence European and American investment institutions to buy gold ETFs, including interest rates, gold prices, liquidity, and the strength of local stock markets. Since the third quarter, they have paid close attention to a new variable: the maturity premium of long-term treasury bond in Europe and the United States has risen sharply, triggering the market's concern about the high debt scale and debt sustainability of European and American countries. ”Jia Shuchang said.

The head of the asset allocation department of a large European asset management institution revealed to reporters that since the third quarter, the proportion of gold ETF allocation has remained stable at 6%.

In the foreseeable future, if financial markets become increasingly concerned about the large debt size and sustainability of European and American countries, we will increase the allocation ratio of gold ETFs by at least 3 percentage points before the end of the year. ”The head of the asset allocation department mentioned above stated that the investment committee attaches great importance to the fact that gold does not have the characteristic of sovereign credit debt default, and instead can have a stronger asset preservation effect in the event of debt repayment turmoil in European and American countries.

(Author Chen Zhi)