* Further liquidation seen in 2014 as economy improves
* Gold-backed ETFs lose $36.4 billion in 2013, BlackRock
By Clara Denina
LONDON, Dec 16 (Reuters) - An unprecedented exodus from
gold-backed exchange-traded funds is expected to push global
holdings next year to their lowest since the 2008 financial
crisis, as an improved outlook for the world economy weakens the
investment case for bullion.
Gold exchange traded products (ETPs) have had record
outflows of $36.4 billion in the first 11 months of the year,
according to data from asset manager BlackRock, marking the
first recorded net yearly outflow for gold.
Exchange-traded products, which issue securities backed by
physical gold, have proved a popular way to invest in bullion
since their inception in 2003.
But this year's biggest annual gold price fall since 1981
put an abrupt end to 12 straight years of growth. The
price fall reflects expectations that economic recovery will
bring an end to monetary stimulus by central banks and higher
real interest rates against a backdrop of low, or lack of,
As the biggest single product in the commodity ETP space by
asset volume, gold was a significant drag on the sector's growth
- $37.3 billion was pulled globally, making 2013 one of the
worst years on record.
The largest gold fund, New York's SPDR Gold Trust,
which accounts for around 40 percent of total ETF holdings, saw
a record outflow of 460 tonnes, or 39 percent, to around 850
tonnes. This coincided with a more than 25 percent slide in gold
prices so far this year.
Liquidation continued even as the gold price stabilised
between $1,200 and $1,300 an ounce from the second quarter's
hefty price falls and central banks around the world - notably
the U.S. Federal Reserve - kept monetary stimulus such as
quantitative easing in place.
"We could go potentially to around ... the level ETFs
holdings were before unconventional policy started in late 2008
... thinking that the U.S. economy has normalised," Standard
Bank analyst Walter de Wet said.
"We expect a liquidation of somewhere between a third and 50
percent of the holdings -- around 800 tonnes from here."
The gold community has proved particularly sensitive to
changes in U.S. monetary policy. The Fed's May policy meeting,
which cast doubt over the scope of its stimulus plan after signs
of economic recovery, led several banks to cut price forecasts
and investors to reallocate out of bullion into equities. U.S.
equities hit all-time highs in 2013.
Brightening economic conditions in 2014 are unlikely to
tempt investors to come back. As the Fed prepares to turn off
its liquidity tap - so called tapering - fund managers will
continue to reverse years of gold ETP buying.
"From our prospective, the first few months of 2014 will be
still very much shaded by this fear of tapering and the impact
that it will have on financial investor behavior and the
potential to see further selling out of the ETFs," BlackRock
portfolio manager Catherine Raw said.
This contrasts with 2009, when exchanged-traded products
posted record inflows of 623 tonnes, according to the World Gold
Council, as investors sought a safe haven following the collapse
of Lehman Brothers and the onset of the global economic crisis.
Investors which buy gold for diversification and capital
gains have become more negative on the gold price, ABN Amro
analysts said, predicting that they will continue to liquidate
because they can no longer bear the opportunity, capital and
income loss associated with holding gold.
"The outlook for gold ETPs is going to depend very much on
the macroeconomic environment in 2014 and currently the almost
unanimous consensus expectation is continued strong recovery of
the U.S. economy, higher interest rates yields and a strong
dollar," Nicholas Brooks, head of investment strategy at ETF
"On that basis, it is unlikely that the gold price will
perform very well and if the gold price does not perform well
there is not going to be strong demand for gold ETPs."