Sharp inflows into Gold-backed ETF that increases bullion demand during the financial crisis have waned. Demand more than halved this year and are unlikely to recover in 2012 as appetite for other asset classes grow, in particularly safe haven fixed income.

Sales of bars and coins are likely to firmly underpin gold demand as gold is still seen as a good store of wealth but ETF buying is likely to remain sluggish. Reuters data showed inflows of 4.34m ounces into 8 products it monitor in Dec 21, well short of the 9.9m ounces recorded in the previous full year.

Investor interest have waned, so you will not be looking at robust flows into these physically backed ETF. More interest is actually materializing into allocated bars. ETFs have flourished just during the financial crisis as they prove a popular way to invest in gold and a diversification away from other riskier assets. It is also a good hedge against fiat currencies whose value are slowly eroding.

Inflow has been directed towards smaller products. The largest US based SPDR fund GLD is on track for a net annual outflow. Most of those that have benefited include gold backed funds in Europe. In the past, interest have been driven in the US. However, the EU crisis has resulted in strong flows materializing in Europe.

One of the headwinds for the ETFs will be the rotation back into gold related stocks and other asset classes if prices continue to fall which will increase their attractiveness. Concurrently, gold volatility which has seen an unprecedented trading range of $500 has hurt its safe-haven appeal. They are no longer providing a safe haven away from the euro debt crisis. Nervous investors in the ETFs are pulling out because of this reason.

Analysts say speculative investors who bought ETFs in anticipation of higher metal prices would probably have already sold them. Investors who bought on a basis of hedging is more sticky. They will probably keep it in their portfolio even if prices are falling as a medium of diversification and long term store of value.

Despite annualized outflows, interest in the SPDR recovered in the fourth quarter despite gold prices putting in their worst quarterly performance in more than 3 years.