Gold ETFs recorded net outflows of $3.1 billion globally in May, reversing course after a four-month run that saw total gold ETF holdings fall just 1% shy of their all-time high in November 2020.

Flows into gold ETFs turned sharply negative in May after four months of inflows.

According to data from the World Gold Council, while changing sentiment resulted in the largest monthly outflow for gold ETFs since March 2021, total holdings in gold ETFs remain 8% higher year-to-date at 3,823 tonnes ($226bn).

All regions experienced net outflows in May but North American-listed ETFs accounted for almost two-thirds of the total with outflows of 34t ($2bn; -1.7% AUM). The Federal Reserve delivered on its expected half-point rate hike which, according to the World Gold Council, was a significant contributor to the rise in redemptions.

Holdings of European-listed gold ETFs fell by 17t ($1bn; -1% AUM). The UK led the region’s decline with outflows of 14t ($856 million) as a fourth consecutive Bank of England rate hike, to a 13-year high of 1%, put a dampener on gold investment. Outflows elsewhere in the region were trivial as interest rates stayed firmly in negative territory and geopolitical uncertainty remained heightened due to the prolonged war in Ukraine. Looking ahead, the World Gold Council notes that the European Central Bank is expected to hike its key interest rate in July which may continue to cast a cloud over gold ETF investment in the region.

Gold ETFs listed in Asia recorded net outflows of 1.3t ($77m; -1% AUM), while gold ETFs in other regions lost 0.4t ($21mn; -0.6% AUM).

ETF flows closely mirrored movement in the gold price which slipped 3.8% to $1,839/oz in May due primarily to a strengthening US dollar and rising interest rates in the first half of the month. According to Adam Perlaky, Senior Analyst at the World Gold Council, central bank behaviour will likely be the significant determinant of investment activity going forward.

Perlaky said: “While investors have recently expressed the sentiment that central bank actions are too little too late, they are hopeful that the Federal Reserve may not raise interest rates as much as previously expected given recent weak economic data. There are two factors they should consider.

“Firstly, while gold is a long-term strategic asset, its seasonality has shifted in recent years. Since 2000, August has replaced September as the second-strongest performing month for gold. Secondly, gold has historically performed well during sustained stock market pullbacks such as the one we are experiencing now. It’s worth noting that gold has registered positive returns during nine out of the ten worst quarterly returns by the S&P 500 since 1971.”