Bullion-backed exchange-traded funds (ETFs) could face renewed outflows if investors continue to increase their bets on interest rate hikes, analysts say — a factor that could pull already falling gold prices lower.
Spot gold prices slipped below a key psychological level of $4 00/oz level for the first time since November 2025 on Wednesday, under pressure from a firmer US dollar and growing expectations that interest rates will remain elevated.
“ETF flows are closely linked to US monetary policy, as reflected in the buying and selling of physically backed products,” said Julius Baer analyst Carsten Menke.
World Gold Council data shows gold-backed ETFs recorded net outflows of 16 t in May and continued to see outflows in the first half of June, although funds last week registered their strongest weekly net inflows since mid-April.
“While recent inflows suggest selling pressure may be easing, ETF demand is likely to remain less supportive than it was in 2025,” analysts at ING said.
Standard Chartered in a note said that at current price levels, more than 200 t of gold in ETFs are in loss-making territory.
Higher rates typically weigh on non-yielding gold.
Expectations that the US Federal Reserve will trim interest rates this year were a key factor behind gold’s record-breaking rally in 2025, sweeping spot prices to an all-time high of $5 594/oz in January.
However, rising energy prices in the wake of the Iran war have fuelled inflation concerns, leading central banks including the Fed to adopt a more hawkish tone and investors to scale up bets on rate hikes, rather than cuts.
Gold prices have retreated around 29% from January’s peak.
“Rising rate forecasts plus huge AI cash-raising suggest a bullish view of the US, if not global, economy,” said Adrian Ash, head of research at online marketplace BullionVault.
“While that doesn’t mean gold is fated to fall, investor attention is most certainly elsewhere right now.”
ETF VS OFFICIAL SECTOR DEMAND
While remaining constructive on gold, some major banks have identified soft ETF demand as a growing headwind to the metal’s further upside.
Morgan Stanley said its $5 200/oz gold forecast for the second half of 2026 appears increasingly dependent on a revival in ETF buying and evidence that lower oil prices are feeding through to a more dovish interest-rate outlook.
Goldman Sachs also tempered its optimism, lowering its December gold price forecast and reducing its projections for ETF demand.
Analysts say that while softer ETF demand could weigh on bullion in the near term, central bank purchases — another key driver behind gold’s rally last year — are likely to remain a key source of support.
“If official sector demand continues to grow rapidly, it can make up for shortfalls in terms of ETF demand,” said Suki Cooper, analyst at Standard Chartered.