Tue. Jan 18th, 2022

Gold exchange traded funds were hit by a net outflow of $ 9 billion last year in a pullback that could announce a significant decline in investor appetite for the precious metal in 2022.

As the largest annual withdrawal from gold ETFs since 2013, analysts now warn that the gold market is facing more significant winds with rises in interest rates in response to inflationary pressures and a stronger dollar expected to weigh on the price of yellow metal this year .

“Many of the drivers that tend to be positive for the US dollar – tighter central bank policies, less US fiscal stimulus and rising real interest rates – also tend to be negative for gold,” said Mark Haefele, chief investment officer at UBS Global. Wealth management. UBS expects the price of gold to fall to $ 1,650 per ounce by the end of this year.

Assets worth $ 209 billion are held in physical-backed ETFs. These funds have become a key barometer of investor sentiment towards the precious metal.

JPMorgan said central banks’ winding-up of “ultra-accommodative” monetary policy this year would be “straight clumsy” for gold, leading to a steady fall in prices to an average of $ 1,520 per ounce in the last quarter of 2022.

Investors rushed last year to withdraw funds from gold ETFs

Gold peaked at $ 2,067 per ounce in August 2020, but its fall above the $ 2,000 level was short-lived and gold ended at $ 1,806 last year, 12.6 percent lower from its peak.

Weaker investor interest was the main pressure on prices, as demand for gold jewelery, rods and coins, industrial use and purchases by central banks all rose last year. But sales by investors led to a net outflow of 173 tons worth $ 9.1 billion from physically backed gold ETFs by 2021, according to the World Gold Council, a trading body.

Ed Morse, global head of commodity research at Citi, said he expects to see “more selling pressure” on gold, which will lead to further 300 tonne ETF withdrawals this year and an additional 100 tonnes in 2023. Citi predicts the price of gold will drop to an average of $ 1,685 per ounce this year before weakening further to an average of $ 1,500 in 2023.

Morse said he was “sympathetic” to the arguments that inflated government deficits and large increases in public and private debt should support the gold price. But Citi has only given a 30 percent probability of a new bull market run that will drive the price of gold to a new high above the $ 2,000 per ounce level this year.

Most of the selling pressure last year was felt in the US where gold ETFs registered net withdrawals of 201.3 tons worth $ 10.8 billion. The UK market also saw an outflow of 28.5 tonnes worth $ 1.5 billion in 2021. In the less mature Asian markets, lower gold prices spurred 14.8 tons of ETF inflows of $ 786.5 million in China. In India-listed gold ETFs, demand also increased with investors spending $ 595.3 million to acquire $ 9.3 tons of additional holdings.

State Street, which manages the world’s largest gold ETF, the SPDR Gold Trust (GLD), said it expects the yellow metal to resume its long-term structural bull market trend in 2022, driven by an increase in demand in the jewelery, industry and technology sectors in China and India.

Any escalation in geopolitical tensions between the US and China or more violence in Ukraine or Kazakhstan could cause “safe haven demand” for gold, says James Steel, HSBC’s veteran precious metals analyst.

“Kazakhstan is a major oil producer and a higher oil price supports gold,” Steel said.

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