Bullion-backed exchange-traded funds (ETFs) might face renewed outflows if traders proceed to extend their bets on rate of interest hikes, analysts say — an element that would pull already falling gold costs decrease.
Spot gold costs slipped beneath a key psychological degree of $4 00/oz degree for the primary time since November 2025 on Wednesday, below strain from a firmer US greenback and rising expectations that rates of interest will stay elevated.
“ETF flows are intently linked to US financial coverage, as mirrored within the shopping for and promoting of bodily backed merchandise,” mentioned Julius Baer analyst Carsten Menke.
World Gold Council information exhibits gold-backed ETFs recorded web outflows of 16 t in Might and continued to see outflows within the first half of June, though funds final week registered their strongest weekly web inflows since mid-April.
“Whereas latest inflows counsel promoting strain could also be easing, ETF demand is more likely to stay much less supportive than it was in 2025,” analysts at ING mentioned.
Commonplace Chartered in a be aware mentioned that at present worth ranges, greater than 200 t of gold in ETFs are in loss-making territory.
Larger charges usually weigh on non-yielding gold.
Expectations that the US Federal Reserve will trim rates of interest this yr had been a key issue behind gold’s record-breaking rally in 2025, sweeping spot costs to an all-time excessive of $5 594/oz in January.
Nevertheless, rising power costs within the wake of the Iran battle have fuelled inflation considerations, main central banks together with the Fed to undertake a extra hawkish tone and traders to scale up bets on fee hikes, relatively than cuts.
Gold costs have retreated round 29% from January’s peak.
“Rising fee forecasts plus large AI cash-raising counsel a bullish view of the US, if not international, economic system,” mentioned Adrian Ash, head of analysis at on-line market BullionVault.
“Whereas that does not imply gold is fated to fall, investor consideration is most actually elsewhere proper now.”
ETF VS OFFICIAL SECTOR DEMAND
Whereas remaining constructive on gold, some main banks have recognized gentle ETF demand as a rising headwind to the steel’s additional upside.
Morgan Stanley mentioned its $5 200/oz gold forecast for the second half of 2026 seems more and more depending on a revival in ETF shopping for and proof that decrease oil costs are feeding via to a extra dovish interest-rate outlook.
Goldman Sachs additionally tempered its optimism, reducing its December gold worth forecast and lowering its projections for ETF demand.
Analysts say that whereas softer ETF demand might weigh on bullion within the close to time period, central financial institution purchases — one other key driver behind gold’s rally final yr — are more likely to stay a key supply of help.
“If official sector demand continues to develop quickly, it might make up for shortfalls when it comes to ETF demand,” mentioned Suki Cooper, analyst at Commonplace Chartered.
