Gold ETFs hit record highs due to Fed rate cuts

As a result of the U.S. Federal Reserve's 25-basis-point interest rate cut, the spot gold price reached a record high of $3,707 an ounce, before later falling to $3,658.25.

The World Gold Council (WGC) reported that global physical gold exchange-traded funds (ETFs) increased 5% in August, reaching $407 billion, a new record. This figure represents the third consecutive month of growth.

According to the WGC, $5.5 billion worth of gold was purchased through ETFs in the eighth month of the year, with funds in North America and Europe increasing their positions, while those in Asia and other regions decreased.

"North American funds added $4.1 billion in August, the third consecutive month of inflows, and the strength is linked to persistent trade risk, general market uncertainty, and a weakening dollar in the international context," the WGC noted in a report.

Current data indicates that cumulative inflows into ETFs so far this year are $47 billion, representing the second strongest year on record after the 2020 peak.

In its August report, the WGC suggested that gold's relationship with US interest rates would strengthen as US investors grew concerned about stagflation (inflation with slowing economic activity), a favorable environment for gold, with ETF investors most sensitive to this concern, while gold futures traders focused on the path of rates.

Investors from the United States led the inflows with $3.999 billion, and the funds with the largest inflows were SPDR Gold Shares with $2.5773 billion, iShares Physical Gold ETC with $877 million, and iShares Gold Trust with nearly $697 million.

So far in 2025, spot gold ETFs have gained from 23.6% for Amundi Physical Gold, to 41% for Invesco Physical Gold ETC, and also from Franklin Responsibly Sourced, Goldman Sachs Physical Gold, among others, which have had interesting returns amid the rally in the gold price of nearly 40 percent.

"So far this year, these vehicles have shown solid growth of 39%, reflecting the sustained appeal of gold as a safe haven asset in an environment of political and monetary volatility," said Felipe Mendoza, analyst at ATFX LATAM.

He added that, overall, the performance of physical gold ETFs anticipated adjustments linked to rate expectations, showing a significant rally so far this year, supported by the search for diversification and hedging against macroeconomic risks.

Up and down

Gold fell after hitting a record high as markets digested comments from Fed Chairman Jerome Powell.

Gold prices fell nearly 1% on Wednesday, retreating from a record high reached earlier in the session, as market participants analyzed the Fed chairman's comments.

Spot gold fell 0.9% to $3,658.25 an ounce, after reaching an all-time high of $3,707.40. Prices have risen nearly 6% this month. U.S. gold futures for December delivery fell 0.2% to close at $3,717.80.

The Fed cut interest rates by a quarter of a point and indicated it will steadily reduce borrowing costs for the remainder of the year. Meanwhile, Powell stated that the Fed is in a meeting-after-meeting situation regarding the interest rate outlook.

"The Fed is showing uncertainty, and Powell has called this a 'risk management' cut, which has prompted some understandable profit-taking," said Tai Wong, an independent metals trader. "A pullback, or at least a consolidation, is healthy; I don't foresee an unusually deep pullback. Unless we break below the important technical support at $3,550, the short-term uptrend should remain intact."

Felipe Mendoza said the outlook for the precious metal's price will depend on the tone of macroeconomic data in the United States and expectations about the speed of the Fed's rate-cutting cycle. Gold tends to gain appeal when rates fall, as lower yields reduce the opportunity cost of holding the non-yielding asset.

Analysts say gold's record high this year is supported by sustained central bank buying, asset diversification away from the U.S. dollar, resilient demand for safe haven assets amid geopolitical and trade frictions, and a weak dollar.

Deutsche Bank raised its gold price forecast for 2026 to an average of $4,000 per ounce, from $3,700. (With information from agencies)