Investors have pulled over $1bn from Invesco’s gold exchange-traded commodity (ETC) so far this year amid bets of an increasingly hawkish Federal Reserve.
According to data from ETFLogic, the Invesco Physical Gold ETC (SGLD) has seen $1.2bn outflows in 2023, the most across all ETFs listed in Europe, while the iShares Physical Gold ETC (IGLN) has suffered $237m redemptions over the same period, as at 20 February.
Weakening demand comes despite the price of gold posting returns of 6.1%, its strongest January in a decade, according to data from the World Gold Council, amid a weakening US dollar and interest rate stability.
The bullish stance adopted by investors has paid off so far with risk-on assets shooting the lights out at the start of the year amid predictions of peak inflation.
However, it appears European investors are becoming increasingly jittery about the prospects for more hikes from the Fed than previously expected.
So far this year, the market has chosen to ignore Fed chair Jerome Powell’s repeated warnings that interest rates will remain higher for longer until inflation is tamed.
The market was even forecasting the Fed to cut rates at the end of the year, however, there has been a shift in sentiment after the latest Consumer Price Index (CPI) reading in the US hit 6.4% year-on-year in January, above expectations of 6.2%, meaning the Fed may have to keep its foot on the gas for longer than market predictions.
Goldman Sachs, for example, is now pricing in a further three interest rate increases this year, according to Reuters.
This could hamper the outlook for gold as higher inflation and subsequent interest rate increases drive a US dollar resurgence.
“The market seems preoccupied with the scope for further interest rate hikes from the Fed,” Ole Hansen, head of commodity strategy at Saxo Bank, said.
“Investor sentiment has once again been challenged with bullion-backed ETF holdings falling to a fresh three-year low last Friday while open interest in COMEX gold futures has fallen by 16% during the past month.”