Gold ETFs See Outflows as Market Panic Triggers Liquidation Wave

Investors fled gold-backed exchange-traded funds this week as equity market turmoil sparked a dash for liquidity. Holdings in bullion ETFs dropped 0.3% to 98.6 million troy ounces on Wednesday - the sharpest daily decline since May. The selloff reflects gold's paradoxical behavior during crises: as the most liquid alternative asset, it often gets sold first when margin calls hit.

Historical patterns suggest this may be temporary. Bloomberg data shows Gold ultimately outperformed stocks by 40 percentage points on average during six major market bottoms. In four of those episodes, the metal posted positive returns despite initial selloffs. "Gold isn't immune to stress - it's victimized by its own liquidity," said a metals strategist. "When investors need cash fast, they tap what's liquid before what's ideal."

Central banks appear unfazed by the volatility. A recent OMFIF survey revealed nearly one-third of 75 central banks plan to increase gold reserves, continuing a multi-year accumulation trend. This institutional demand could provide structural support once retail liquidation subsides.