What is the impact of ETF creation/redemption on physical gold flows?

In my experience, ETF creation injects physical gold into vaults via authorized participants, while redemptions withdraw it, causing short-term swings in available bar stocks.

From my experience watching GLD-like ETFs, creation and redemption act like a one-way valve for physical gold. When new shares are created, counterparties deliver gold to the ETF, vault stock grows, and less gold sits in the broader market. When investors redeem, gold is returned to the market, boosting available supply. Net: creations tighten physical supply; redemptions loosen it, nudging premiums and liquidity.

During big ETF creation days, I noticed vaults get fed with metal as authorized participants swap cash for gold, lifting local supply and sometimes softening premiums. Redemptions pull metal back into the market, tightening nearby supply. The takeaway: track ETF moves when price gaps widen; delivery risk is real, not theoretical.

Back when I traded metals, ETF flows felt like a hidden faucet for physical gold. Net inflows into a fund like GLD triggered in-kind creations: authorized participants delivered gold to the custodian, and new ETF shares were issued. That metal went into the vaults, taking inventory off the market and easing short-term supply pressure. I’d see spot quotes drift a touch less volatile even as jewelry demand stayed strong, because the ETF could absorb some buying without hitting bullion desks.

When redemptions picked up, the process reversed: APs sent shares back and gold flowed out to back them, putting more metal into the market. Prices could dip a bit in the short run. In short, ETF creation and redemption quietly move physical gold around and can tilt the price path more than you’d expect.