Behind the sharp decline in gold yesterday: The scale of U.S. gold ETF sales hit a record high, with total holdings below 2020 levels

In the midst of yesterday's surge in the U.S. stock market, the gold market faced a heavy setback.

Goldman Sachs ETF expert Chris Luccas stated that yesterday, the U.S. gold ETFs (such as SPDR Gold Trust, abbreviated as GLD) experienced the largest single-day redemption of -$1.3 billion, surpassing the market panic triggered by the Swiss National Bank's intervention in 2011, indicating a significant shift in market sentiment.

In fact, based on the actual amount of gold held, U.S. gold ETFs are far below the levels of 2020.

It is worth noting that some analysts pointed out that despite the severe short-term volatility, strong physical demand from China provided important support.

Gold ETFs Face Record Sell-off Scale

Goldman Sachs noted that the GLD fund performed unusually yesterday, closing as the third largest ETF by trading volume, which is very rare for GLD, and set the third largest nominal trading volume since its establishment in 2004. Goldman Sachs' trading desk leaned towards large sell-offs (mainly from long-term holders), a phenomenon that spread across spot and mining company ETFs, with supply accelerating in the latter half of the trading session.

In terms of primary market capital flows, GLD recorded -$1.3 billion in outflows, the largest single-day outflow since 2011, when the Swiss National Bank's massive intervention set a price ceiling for gold for nearly a decade. Meanwhile, GDX faced -$200 million in redemptions, marking the worst single-day outflow in the past 12 months.

In terms of price performance, the performance gap between spot gold and the S&P 500 reached one of the largest levels in the past five years.

Goldman Sachs pointed out that on the surface, the assets under management (AUM) of gold ETFs reached a new high, but in reality, based on the actual amount of gold held, U.S. gold ETFs are far below the levels of 2020. Although capital inflows remain strong this year, the impact of large-scale redemptions on that day shows that the bottom line for paper gold has yet to be reshaped.

While occasional liquidations of gold ETFs are unavoidable, there is still significant room for the ETF sector to catch up with actual prices. Therefore, although sell-off days like yesterday are to be expected, ETF buying will ultimately emerge inevitably.

Fundamental Drivers: Chinese Demand Gradually Improves

For gold bulls, yesterday's sharp decline brought significant psychological pressure, but it is noteworthy that the persistent physical demand provided support to the market.

Although the sell-off after two days of overbuying was remarkable, with a 4% drop being one of the most severe two-day declines in history, the physical demand from China arrived as expected when the Chinese market opened, helping gold prices rise by about $40 within minutes, an increase of about $100 from the low.

Analysis indicates that as Chinese investors continue to increase their allocation to gold, the "bottom" of the gold market is gradually stabilizing, and from a long-term perspective, the true value of gold remains recognized.