China Securities Co., Ltd.: How is the flow of funds in gold ETFs in the background of the Fed rate cut?

China Securities Co., Ltd. released a research report stating that last week, the price of gold in Shanghai reached a new high of 838.42 yuan/gram. As of September 19, the total scale of domestic commodity gold ETFs had reached 1556.70 billion yuan, an increase of 120% from the end of last year. Since September, funds flowing into domestic gold ETFs have reversed the trend of net outflows seen in August, with a total inflow of 4.774 billion yuan as of September 19. The total gold holdings of the six largest global gold ETFs have increased by 203.28 tons since 2025. The Federal Reserve's interest rate cut cycle, global geopolitical uncertainties, and continued central bank gold purchases have provided strong support for gold, highlighting its long-term value in asset allocation. Under the background of the Federal Reserve's interest rate cut, how is the flow of funds in gold ETFs? Last week, the price of gold in Shanghai reached a new high of 838.42 yuan/gram, and another gold ETF with a scale of over 10 billion yuan was added, namely the E Fund SSE CSI Gold Industry Stock ETF. As of September 19, the scale of the E Fund SSE CSI Gold Industry Stock ETF had reached 10.531 billion yuan, making it the fifth largest gold ETF in China. At the same time, the largest gold ETF in China, the Huaxia CSI SSE CSI Gold Industry Stock ETF, has returned to a scale of 60 billion yuan, reaching 62.022 billion yuan. The Bosera Gold ETF, E Fund Gold ETF, and Guotai Gold ETF scales also remained above 10 billion yuan. Looking at the total scale of domestic commodity gold ETFs, it had reached 1556.70 billion yuan, an increase of 120% from the 708.87 billion yuan at the end of last year. The significant increase in the scale of gold ETFs is closely related to their performance. Since late August, COMEX gold has launched an offensive, with an increase of over 10% in the past month as of September 19, reaching a new record high of 3719.4 US dollars per ounce, touching 3734.8 US dollars per ounce at its peak during the day, setting another historical high. Influenced by this, gold ETFs have risen one after another. As of September 19, several gold ETFs, such as the E Fund SSE CSI Gold Industry Stock ETF and the Huaxia CSI SSE CSI Gold Industry Stock ETF, have seen a net increase of over 15% in the past month. The reasons for the new high in gold last week are as follows: 1. Weak US economic data and expectations of interest rate cuts: US non-farm payroll employment in August and the full-year 2025 non-farm employment were lower than expected, with the August unemployment rate hitting a new high since October 2021, initial claims for unemployment benefits exceeding expectations, and the University of Michigan Consumer Confidence Index in September lower than expected, indicating a weak employment situation and the possibility of an economic recession. At the same time, the August PPI in the US was significantly lower than expected, while the CPI and core CPI met expectations, the inflation situation prompted the Federal Reserve to cut interest rates in September, with market expectations of two more rate cuts by the end of 2025. In this situation, the financial attributes of gold make it more attractive in the early and middle stages of the interest rate cut cycle. Investors anticipate currency depreciation, increase their investment in gold to preserve and increase the value of assets, driving up the price of gold. For example, SPDR holdings have rapidly increased since June, with European and American investors flowing funds into the gold market under expectations of Federal Reserve interest rate cuts, becoming the main driver of the current rise in gold prices. 2. Stagflation risks and safe-haven demand: The US inflation is expected to remain strong after being affected by tariffs and interest rate cuts, while major European economies are facing deteriorating fiscal conditions and stagflation risks. In a stagflation environment, gold has a relative advantage compared to other asset classes, better fulfilling its role as a safe-haven and store of value. Investors seek to hedge against economic instability and the risk of asset depreciation by increasing their allocation to gold, leading to an increase in gold demand and pushing prices up. 3. De-dollarization trend and central bank acquisitions: The wavering independence of the Federal Reserve and the rising deficit eroding the credit of the US dollar and US bonds have intensified the global trend of "de-dollarization". The Chinese central bank has been increasing its gold reserves for the tenth consecutive month, and emerging market central banks such as China and India hold significantly lower proportions of gold reserves compared to the global average, motivating various market participants to continue increasing their gold asset allocation. This increased demand provides strong support for the price of gold, driving the central price of gold and gold stocks upwards. 4. Performance of gold stocks driving the market: Recently, the half-year earnings performance of gold stocks has seen a significant increase, surpassing expectations, with some large gold mining companies showing a significant increase in net profit attributable to shareholders. The high increase in performance is attributed to the rise in gold prices and an increase in production, which not only dilutes the P/E valuation of gold mining companies but also provides valuation recovery space for gold stocks. At the same time, the market value/reserve ratio of leading companies is approaching the reset cost line, attracting more industrial capital to become new buyers. The strong performance of gold stocks has attracted more attention and capital to the gold market, driving up the price of gold. With the strong performance of gold ETFs, a large amount of funds are pouring in. Looking at the fund inflows, since September, gold ETFs have continued to maintain a high level of investment enthusiasm, reversing the trend of net outflows seen in August. As of September 19, the net subscription volume of gold ETFs since September had reached nearly 3.7 billion shares. Among them, the E Fund SSE CSI Gold Industry Stock ETF had the largest net subscription volume, reaching 2.548 billion shares, followed by Huaxia CSI SSE CSI Gold Industry Stock ETF at 794 million shares, E Fund Gold ETF at 317 million shares, and Guotai CSI SSE CSI Gold Industry Stock ETF with a net subscription of nearly 200 million shares. The flow of funds in domestic gold ETFs in 2025 has presented a complex situation, with both inflows and outflows overall, and differing performances in different time periods, which is mainly influenced by a variety of factors such as market conditions, economic data, and policy expectations. From the beginning of the year to April, there was a significant inflow of funds: from the beginning of the year to April, there was a clear trend of inflow of funds into gold ETFs. For example, data for April showed that there were several days with significant inflows, such as April 21-22, with inflows of 4.874 billion yuan and 6.353 billion yuan respectively. The reason for the inflow of funds during this period was the uncertainty in the global economic situation caused by Trump's tariff policy. From May to August, there were significant fluctuations in fund flows, with large outflows on May 14-16, amounting to -1.729 billion yuan, -0.741 billion yuan, and -3.208 billion yuan respectively. Alternating good and bad economic data, as well as uncertainties in macro policy adjustments, caused fluctuations in investor sentiment, leading to frequent adjustments in investments in gold ETFs and resulting in frequent inflows and outflows of funds. In September, funds showed a trend of inflows first, followed by outflows, with a total inflow of 4.774 billion yuan as of September 19. In the early hours of September 18, the Federal Reserve held a rate decision meeting and announced a reduction in the federal benchmark interest rate by 25 basis points to a range of 4.0%-4.25%. With the interest rate cut, the price of gold in Shanghai fell from 838.42 yuan/gram to 825.63 yuan/gram during the week, and on September 19, domestic gold ETFs saw a net outflow of 762 billion yuan. Looking at the total holdings of gold ETFs globally, since 2025, the total gold holdings of the six largest gold ETFs (SPDR, iShares, GOLD, PHAU, SGBS, and GBS) have increased by 203.28 tons, an increase of 31.63 tons just last week. Particularly, the SPDR and iShares gold ETFs saw a more significant increase in holdings, with an increase of 19.76 tons and 11.61 tons respectively. After the Federal Reserve's interest rate cut announcement on September 18, the SPDR gold ETF saw an increase of 18.9 tons on September 19. This may be the result of the market continuing to digest the impact of macroeconomic policies such as the Federal Reserve interest rate cut, with investors still bullish on the long-term trend of gold and continuously increasing their allocation to gold ETFs. At the same time, this could also be driven by factors such as global economic uncertainty, geopolitical risks, etc., prompting investors to seek safe-haven assets. The long-term value of gold allocation remains significant, with short-term and long-term trends affected by different factors showing differentiation. In the short term, the gold price may fluctuate as some investors take profits; in the long term, the three pillars of the Federal Reserve's interest rate cut cycle, global geopolitical uncertainties, and continued central bank gold purchases provide strong support for gold, highlighting its long-term value in asset allocation. In terms of future benefits, the Federal Reserve's interest rate cut will weaken the US dollar, enhance the attractiveness of gold, and drive funds into gold ETFs; global economic and geopolitical risks will sustain demand for gold as a safe haven, boosting gold prices; global central bank gold purchases will also support gold prices. However, if global economic data exceeds expectations, it may trigger a shift of funds from gold to high-risk assets, leading to a decrease in the holdings of gold ETFs and a pullback in gold prices.