The bullion market has suffered it worst start to a year in almost a decade as US investors pulled money out of gold-backed exchange traded funds.
Gold demand totalled 1,959 tonnes in the first half, the lowest level since 2009, and down from 2,086 tonnes a year earlier, according to report published by the World Gold Council on Thursday.
While industrial and jewellery demand was steady during the period, ETF’s bought just 60.9m tonnes of gold in the past six months, versus 160.9 tonnes in same period a year before, as US investors backed away from the market.
Gold has been out of favour in the US as the Federal Reserve has lifted interest rates twice this year and has signalled further hikes are on the way. On Wednesday, the Fed highlighted the strength of America’s economic expansion alongside inflation that is hovering close to target.
As a non-interest bearing asset gold can suffer when interest rates rise and investors chase higher returning assets.
What is perhaps more surprising is that gold has not benefited, in the US at least, from an increasingly volatile geopolitical backdrop and the trade skirmishes between Washington and Beijing.
Gold has posted four straight months of losses, its worst run since 2013, and hedge funds and speculators are now betting aggressively against the metal.
Last week, the net short position in gold – the difference between bets on falling and rising prices – hit 27,156 contracts, the equivalent of 2.7m ounces of the precious metal, its highest level since 2006, according to data compiled by Commodity Futures Trading Commission.
After seeing healthy inflows in April, North American ETFs saw two months of selling in May and June, resulting in net outflows of 30.7 tonnes in the second quarter, the WGC report shows.
Alistair Hewitt, the WGC’s head of market intelligence , said there were two major themes behind the weakness in US ETF demand.
“One is the strong US economic performance which has cemented expectations for rates rises in the second half of the year,” he said.
“There is also a perception in North America that the US is in a stronger position when it comes to geopolitical tensions. If there are going to be trade war then the US is going to have the upper hand,” he said.
“When you look at the broader financial markets that has already been played out. The fall of the Shanghai stock exchange, the depreciation of the renminbi and you can contrast that with the relative strength of the S&P 500 and the US dollar.”
Gold was trading at $1,219 an ounce on Thursday, down 6.5 per cent since the start of the year.