(Bloomberg) -- Investors in the world’s biggest ETP backed by bullion sold the most gold in 18 months as the U.S. economic recovery cut demand for a haven.

Holdings in the SPDR Gold Trust fell 1.6% yesterday to 712.9 metric tons, the biggest drop since June 2013. Assets declined to the smallest since September 2008.

Bullion for immediate delivery is heading for the first back-to-back annual decline since 2000. A collapse in oil prices is curbing demand for the metal as an inflation hedge, while the Federal Reserve is moving closer to increasing interest rates. Gains for the dollar and U.S. equities have also made gold less attractive as an alternative asset.

“You’ve got all these factors conspiring against gold,” Michael Cuggino, president and fund manager at Permanent Portfolio Family of Funds Inc. who helps oversee $7 billion, said in a telephone interview. “A certain number of investors are throwing in the towel.”

Spot gold climbed 0.3% to $1,179.76 an ounce by 3:41 p.m. in Singapore on Dec. 24. Prices fell 1.8% this year after a 28% plunge in 2013, the most since 1981.

The U.S. economy expanded at a 5% annualized rate in the third quarter, the biggest advance in 11 years, government figures showed yesterday. Fed officials last week dropped a pledge to keep borrowing costs near zero percent for a “considerable time,” replacing it with a promise to be “patient,” according to a statement.

VALUE DROPS

The value of assets in the SPDR has dropped 13% to about $27 billion this year after slumping 57% in 2013, according to data compiled by Bloomberg. Holdings in gold-backed ETFs declined 8.7% to 1,609.3 tons after a 33% plunge last year, data compiled by Bloomberg show.

Gold has “held up pretty well considering other markets have been sold off pretty heavily,” said Mark Pervan, head of industry economics and research at Australia & New Zealand Banking Group Ltd. in Melbourne. “You haven’t seen as much selling in ETFs. Although it’s not recovering, it’s certainly nothing like what we saw last year.”

Holdings in the SPDR Gold Trust in which billionaire John Paulson is the biggest investor have declined 11% this year after plunging 41% in 2013.

While investors have been selling, some countries have bought gold after reducing holdings for about two decades from the late 1980s. Central banks globally will probably purchase 400 tons to 500 tons this year, the World Gold Council says. Russian reserves climbed for an eighth month in November to about 1,187.5 tons, the highest in at least two decades, according to International Monetary Fund data.

REALLOCATION TRADE

Brent crude oil tumbled 45% in 2014 and West Texas Intermediate fell 42% as supplies climbed. The Bloomberg Commodity Index of 22 components dropped 15% to head for a fourth straight annual loss.

While the stronger dollar has made gold less appealing for American buyers, physical demand in India and China can help support prices, Cuggino said. In the U.S., there’s a “reallocation trade happening” with investors switching out of gold and into equities, he said.

Yesterday’s better-than-estimated report on the U.S. economy sent benchmark stock gauges to record highs.

The collapse in crude and the longest commodity slump in at least a generation means that instead of the surge in consumer prices that gold buyers have been expecting for much of the past decade, the U.S. is “dis-inflating,” according to Bill Gross, who used to run the world’s biggest bond fund.

Gold surged 70% from December 2008 to June 2011 as central banks increased money supply on an unprecedented scale, spurring concerns that inflation would accelerate. Bullion generally offers investors returns only through price gains.

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