London: Gold-backed exchange-traded funds are set for their biggest quarterly outflow since inception, with investors beating a hasty retreat from the market due to a brightened global economic backdrop. FED POLICY
Holdings in the eight gold-backed exchange traded products (ETPs) are down by 7.2 percent to 70.66 million ounces this year.
The largest, New York's SPDR Gold Trust, accounts for around 40 percent of total ETF holdings and is down 12 percent to 39.26 million ounces.
Other gold products such as the Comex Gold Trust also reported a quarterly decline of 241,548 ounces. The ETF Securities' GBS fund was down five percent.
The bulk of outflows coincided with February's fall in gold prices, the largest monthly decrease since May 2012.
Investors continued to liquidate even as the debt crisis in Cyprus prompted a rally this month, with a perception of overall improving economic conditions suggesting that a period of disinvestment, or at least stabilisation, may occur.
"I don't think that the economic environment as the year progresses, with interest rates possibly starting to rise and inflation remaining fairly benign, is going to be one that allows investors to come back," Nomura precious metals analyst Tyler Broda said.
Exchange-traded products, which issue securities backed by physical gold, have proved a popular way to invest in bullion since their inception in 2003.
Given their overall importance to the gold market, more sustained outflows could spell further downside for prices, analysts said.
They posted record inflows of 623 tonnes in 2009, according to the World Gold Council, as investors searched for a safe haven following the collapse of Lehman Brothers and the onset of the global economic crisis.
Inflows had eased back to 279 tonnes last year, but it remained crucial in supporting prices due to the decline of global gold jewellery demand and a steep slowdown in the expansion of central bank gold buying, analysts said.
"The implications for the gold price if investment demand is to reverse are acute," Broda said.
"After 12 straight years of price increases, we are concerned that improving global investor sentiment, the possibility of higher real interest rates and muted Western inflation (for now) could see some of the USD 240 billion invested in gold over the past four years return to the market."
The reduction in growth seen after 2009 can in part be attributed to a maturing of the product cycle, as gold ETFs have been available to the public for eight years and are no longer a new investment, HSBC analyst James Steel said.
"That might explain going forward that the most spectacular growth in ETFs is behind us," he said.
Speculation that the US Federal Reserve may turn off its liquidity taps earlier than originally expected, combined with a stronger dollar after a run of positive US economic data, have been seen as drivers behind a pullback by investors in gold.
Gold is particularly sensitive to changes in US monetary policy. The Fed's February policy meeting, which cast doubt over the scope of its stimulus plan after signs of improved economic recovery, led many banks to cut price forecasts.
But the US central bank reassured the markets that it will not change its accommodative stance until the labour market shows sustainable recovery.
In contrast to gold, silver attracted heavy investment interest despite a fall in prices. The metal's physical ETP has gained 4.2 percent to 546.535 million ounces so far in the first quarter.
Holdings in the iShares Silver Trust, which accounts for around 60 percent of total ETF holdings, rose 6 percent to 343.645 million ounces.
"With people thinking that silver is more of an industrial metal and thinking that there is going to be a stronger economic recovery, then silver should do better than gold," Credit Suisse analyst Tom Kendall said.
The price of silver lost five percent since the start of the year to current levels of USD 28.80 an ounce.
London: Gold-backed exchange-traded funds are set for their biggest quarterly outflow since inception, with investors beating a hasty retreat from the market due to a brightened global economic backdrop.