Gold exchange traded funds (ETFs) have recorded another month of outflows in February, losing $1.7-billion, or 34 t, marking a tenth consecutive monthly loss.

Market researcher Gold Hub, which is part of the World Gold Council, attributes the divestment in gold to a stronger dollar and rising bond yields, leading to a 5% decline in the gold price to $1 825/oz, which may have discouraged gold ETF investors.

The gold price denominated in other currencies experienced a much milder decline.

Gold Hub explains that European funds were the main divestors in gold in February, shedding $1.2-billion, or 25 t, as well as some North American funds, which combined divested $547-million, or 10 t.

Asian funds saw a mild outflow of $4-million, or 0.1 t.

“Surprisingly strong US economic data has driven a rebound in the dollar and bond yields. Markets seem to be taking the data at face value with fears that more aggressive monetary policy is needed to tame inflationary pressures.

“While this looks bad for risk assets and gold, which promptly reversed their respective four-month trends, there are compelling arguments for why January data is no more than a blip and the prospect of an economic slowdown remains on the table,” Gold Hub states.

Though not without risks, it says a good case for gold remains in place for this year, driven by elevated geopolitical risk, a developed market economic slowdown, a peak in interest rates and risks to equity valuations.

Additionally, central banks have continued with strong gold-buying activity, which also bodes well for gold overall. In January, central banks collectively added net 31 t of gold to global reserves, adding to ten consecutive months of net buying.

Some of the risks for gold demand this year include the Federal Reserve and other central banks not being ready to take the foot off the brakes and lower rates. If accompanied by a fall in inflation, that could make real returns on bonds much more attractive than current levels.

Should real rates move higher, it could present a further headwind to the gold price.