Gold exchange-traded funds were hit by net outflows of $ 9 billion last year in a pullback that could herald a significant drop in investor appetite for the precious metal in 2022.
Marking the biggest annual ETF pullback on gold since 2013, analysts are now warning the gold market is facing greater headwinds with interest rate hikes in response to inflationary pressures and a dollar stronger which should weigh on the price of the yellow metal this year.
“A lot of the factors that tend to be positive for the US dollar – tighter central bank policy, 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 the year.
Assets worth $ 209 billion are held in ETFs backed by physical gold. These funds have become a key barometer of investor sentiment towards the precious metal.
JPMorgan said the unwinding of “ultra-accommodative” monetary policies by central banks this year would be “downright bearish” for gold, causing the price to drop steadily to an average of $ 1,520 per ounce in the last quarter of 2022.
Gold hit an all-time high of $ 2,067 an ounce in August 2020, but its foray above the $ 2,000 level proved short-lived and bullion finished last year at 1,806 $, down 12.6% from its peak.
Weaker investor interest was the main drag on prices, as demand for gold jewelry, bullion and coins, industrial use, and central bank purchases all increased over the past year. But the sell-off by investors resulted in net outflows of 173 tonnes worth $ 9.1 billion from physically-backed gold ETFs in 2021, according to the World Gold Council, a trading body.
Ed Morse, global head of commodities research at Citi, said he expected to see “more selling pressure” on gold, leading to further ETF withdrawals of 300 tonnes this year and An additional 100 tonnes in 2023. Citi predicts that 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 arguments that inflated government deficits and huge increases in public and private debt should support the price of gold. But Citi only attributed a 30% chance that another bull run in the market would take the price of gold to a new high above the $ 2,000 an ounce level this year.
Most of the selling pressure over the past year was felt in the United States, where gold ETFs recorded net withdrawals of 201.3 tonnes to a value of $ 10.8 billion. The UK market also saw outflows of 28.5 tonnes valued at $ 1.5 billion in 2021. In less mature Asian markets, falling gold prices boosted ETF inflows of 14.8 tons worth $ 786.5 million in China. Gold ETFs listed in India also saw demand rise, with investors spending $ 595.3 million to acquire 9.3 tonnes of additional securities.
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 increased demand in jewelry, industry and technology. sectors in China and India.
Any escalation in geopolitical tensions between the United States and China or more violence in Ukraine or Kazakhstan could “trigger a safe haven demand” for gold, said James Steel, senior precious metals analyst at HSBC.
“Kazakhstan is a major oil producer and a higher oil price supports gold,” Steel said.