Gold struggles to attract investors as interest rates rise

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Gold exchange traded funds were hit by net outflows of $9bn last year in a retreat that could herald a significant decline in investor appetite for the precious metal in 2022. Marking the biggest annual withdrawal from gold ETFs since 2013, analysts are now warning that the bullion market faces more significant headwinds with increases in interest rates in response to inflationary pressures and a stronger dollar expected to weigh on the price of the yellow metal this year. “Many of the drivers that tend to be positive for the US dollar — tighter central bank policy, less US fiscal stimulus, and rising real interest rates — also tend to be negative for gold,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. UBS expects the price of gold to sink to $1,650 an ounce by the end of this year. Assets worth $209bn are held in ETFs backed by physical gold. These funds have become a key barometer of investor sentiment towards the precious metal. JPMorgan said that central banks’ unwinding of “ultra-accommodative” monetary policies this year would be “outright bearish” for gold, leading to a steady decline in the price to an average of $1,520 an ounce in the final quarter of 2022.

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