“A wave of outflows from ETFs was the principal cause of the decline, although this was mitigated by record demand for gold bars and coins. Continuing the theme of the previous quarter, demand for jewellery grew significantly to reach multi-year highs,” according to the WGC report.
The outflows from gold ETFs were spurred by Western investors reacting to a seemingly more positive outlook for the U.S. economy and an eventual tapering of quantitative easing, the report said. [Sinking Treasury ETFs Point to September Fed Taper]
“ETF outflows accelerated during the second quarter as a number of hedge funds and speculative investors exited their positions in reaction to predictions of U.S. economic recovery,” the WGC noted. “The prospect of the U.S. government tapering quantitative easing by the end of 2013 had a disproportionate downward impact on the gold price as some investors in ETFs saw their key rationale for seeking a safe haven in gold fade.”
While ETFs may continue to contract, “we expect the pace to slow as the holder base becomes stickier,” according to the report. [No Capitulation Selling in Gold ETF During Crash]
Full disclosure: Tom Lydon’s clients own GLD.