NEW YORK – Gold-backed exchange-traded funds (ETFs) could face renewed outflows if investors continue to speculate that the Federal Reserve will maintain its tight monetary policy, a factor that could add further pressure to gold prices, which have already fallen sharply.
According to Reuters, spot gold prices on Wednesday (24/6) fell below the psychological level of US$4,000 per ounce for the first time since November 2025. The decline came amid a stronger US dollar and growing expectations that interest rates will remain higher for longer.
Julius Baer analyst Carsten Menke said fund flows into gold ETFs are closely tied to the direction of US monetary policy, particularly for products backed by physical gold.
He said shifts in interest rate expectations are directly reflected in investors’ buying and selling activity in these instruments.
World Gold Council data showed that gold-backed ETFs recorded net outflows of 16 tonnes in May 2026 and continued to experience outflows during the first half of June. Even so, the funds posted their strongest weekly inflows since mid-April last week.
ING analysts said the latest inflows suggest selling pressure may be beginning to ease, although ETF demand is still expected to remain weaker than in 2025. Standard Chartered also noted that, at current price levels, more than 200 tonnes of gold held in ETFs are sitting at a loss.
Expectations that the Fed would cut interest rates this year had previously been one of the main drivers behind gold’s rally throughout 2025, with spot prices reaching a record high of US$5,594.82 per ounce in January.
However, soaring energy prices following the Iran war fuelled inflation concerns, prompting central banks, including the Fed, to adopt a more hawkish stance. This shifted market expectations away from interest rate cuts towards the possibility of rate hikes.
Since its January peak, gold prices have corrected by around 29%.
BullionVault Head of Research Adrian Ash said the combination of higher interest rate projections and strong fundraising for the artificial intelligence (AI) sector reflects continued market optimism about the US economy and even the global economy.
Under such conditions, investors’ attention has temporarily shifted away from gold and towards other assets.
Even so, several major banks continue to maintain a constructive outlook on gold, although they acknowledge that ETF demand remains one of the main obstacles to further price gains.
Morgan Stanley said its forecast for gold to reach US$5,200 per ounce in the second half of 2026 is now increasingly dependent on a revival in ETF demand and evidence that lower oil prices are genuinely improving the outlook for more dovish interest rate policy.
Goldman Sachs has also lowered its December gold price forecast and reduced its ETF demand projections. However, analysts believe weaker ETF demand could still be offset by central bank buying, which was one of the key drivers of last year’s gold rally.
Standard Chartered analyst Suki Cooper said that if demand from the official sector continues to grow rapidly, central bank purchases could make up for the shortfall in ETF demand. (ARF/LM)
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