Lightroom does not store flag indicator (and a bunch of other things) in XMP.
It's not very dfficult to find this information yourself.
- Make a copy of the current XMP file for a given image
- Change the flag in Lightroom
- Save the XMP file or make sure that changes are saved automatically
- Compare both XMP files with a text comparison tool (Beyond Compare for example - this tool is amazing)
I did this for you and could see that this information doesn't seem to be stored in the XMP file. Which is not surprising since it is specific to LR. So it's stored in the catalog.
They are simply stored in the catalog.
Thank you gentlemen. I appreciate your responses.