Gold-backed exchange traded funds (ETFs) have experienced a second consecutive months of outflows, at 28 t, or $1.7-billion, in June.

This followed the 53 t of outflows recorded in May and contributed to net outflows of 39 t, or $2-billion, for the second quarter of the year.

Year-to-date inflows, however, remained positive at 234 t.

Total holdings at the end of June stood at 3 793 t, or $221-billion, up 6% in the year-to-date, compared with the same period last year.

Prominent outflows in June included large US funds, which the World Gold Council (WGC) attributes to an intense focus on the future pace of interest rate hikes and a stronger dollar. 

European outflows were more modest at 4 t, or $245-million, mostly in Switzerland, Germany and France. Despite the gloomy economic outlook for Europe, with record inflation and rising sovereign borrowing costs, the European Central Bank plans on raising interest rates in July, which will mark the first interest rate hike in the region in 11 years.

Gold ETF holdings in Asia rose slightly by 1 t, or $11-million, with range-bound gold price and local equity strength discouraging greater levels of gold ETF investment, the WGC explains.

Holdings in other regions were mostly flat month-on-month, barring India, which also had minor net inflows.

The first half of this has been a tale of two halves, the WGC says, since demand for gold ETFs had surged in the first quarter to 273 t, propelled by gold price strength, equity market weakness, rising inflation expectations and unexpected geopolitical events.

However, this investment started reversing in the second quarter as interest rate hikes and quantitative tightening came to dominate the narrative.

“However, the fact that only a fraction of the first quarter's inflows were unwound is a sign that much of this demand is ‘sticky’ and more strategic in nature,” the WGC notes.

The council believes investors globally are facing a challenging environment for at least the remainder of the year, having to navigate rising interest rates, high inflation and continued geopolitical risks.

The WGC says the gold price will likely remain sensitive to real rates, the speed at which global central banks tighten monetary policy and institutions’ effectiveness in controlling inflation.