SINGAPORE, June 11 (Reuters) - The assets of the world’s top exchange-traded gold fund have hit their lowest since September 2008, the month Lehman Brothers filed for bankruptcy, and the worst may not be over due to robust equities and prospects of higher U.S. interest rates.
The outflows from bullion-backed funds could further undermine global gold prices, especially as physical demand is weak in Asia, the top consuming region.
New York’s SPDR Gold Trust said its holdings fell to 704.23 tonnes, or 22.6 million ounces, on Wednesday. They have nearly halved from their peak of 43.43 million ounces in less than three years, largely because of the bearish turn in gold.
“It is a symptom of the broad apathy towards gold at the moment,” said ANZ analyst Victor Thianpiriya. “There is not a lot of conviction in gold markets.”
After an uninterrupted 12-year rally, the gold price tumbled by nearly a third in 2013, hurt by signs of recovery in the U.S. economy, the prospect of higher U.S. interest rates and strength in the dollar and equities.
The price has slumped nearly 40 percent since hitting a peak of $1,920.30 an ounce in 2011. On Thursday, it traded around $1,187.
Gold exchange-traded funds (ETFs), which issue securities backed by physical metal, proved popular with investors during the financial crisis that followed the collapse of Lehman.
But with signs of economic recovery, they saw heavy outflows from early 2013 as investors sought better returns elsewhere.
The combined holdings of the top eight gold ETFs are near their lowest since early 2010.
“We are going to see a continuous trickle of outflows for the next 12 months at least,” said ANZ’s Thianpiriya.
The ETFs saw huge outflows in 2013, but physical demand in Asia was at record levels at that time as a sharp drop in prices attracted bargain-hunters. That absorbed the outflows to some extent and put a floor under prices.
But this time around, Asian demand is sluggish due to expectations of still more price declines and the seasonally slow summer period is arriving.
“The redemptions are providing further supply into the market and cap upside moves in gold,” said a precious metals trader in Sydney, adding that the softness in Asian physical demand was worrying.
“Precious metals are out of favour now. As long as equities are going higher, we will see redemptions in the ETFs.”
Editing by Alan Raybould