Insights

The local Chinese gold price premium has been surging lately: September’s average reached the highest monthly level for nearly six years.

Many of the investors we talk to feel that gold’s performance should be much stronger considering multi-decade high inflation across the world

Retail demand is gradually picking up, supported by festivals during the month and ahead of the wedding season. Official imports are expected to pick up during August on the back of improved retail demand.

While the gold price dip may have provided a short-term boost for local gold demand, we believe a sustained recovery requires reviving economic and income growth, fewer disruptions from coronavirus and more weddings. 

The domestic gold price declined by 0.7% during June, ending the month at Rs50,809/10g. Retail demand remained muted as the wedding season ended and sowing activity picked up with the onset of the monsoon.

The Shanghai Gold Price Benchmark PM (SHAUPM) in RMB and LBMA Gold Price AM in USD both trended down in June. 

Gold has fallen more than US$100/oz over the past month, with the bulk of the decline occurring over two days last week.

Gold has come under pressure since mid-March, when it was within touching distance of its previous record high.

Authored by Krishan Gopaul and Johan Palmberg

• The risk of stagflation has increased materially since we addressed the topic last year
• Europe appears to be at greater risk than the US, due to higher exposure to soaring commodity prices and a weaker economic position, but alarm bells could soon ring across the Atlantic, too
• Year-to-date, gold has performed well, arguably reflecting the Ukraine crisis and the ongoing reflationary environment
• But should stagflation become widespread it could provide further support for gold as a diversifier and risk hedge

Due to fewer working days in the month and manufacturers’ active replenishing ahead of the Chinese New Year (CNY) holiday, gold withdrawals from the Shanghai Gold Exchange (SGE) in February fell m-o-m.

Spot #gold is trading around $1827/oz with a $0.30/oz bid-ask spread on Friday morning in London.

Although it bounced after stronger US inflation data, it couldn't hold those gains as yields firmed late in the day.

But let's look at a slightly longer term perspective...

The September edition of Bank of America’s bellwether Global Fund Manager Survey highlights a growing disconnect between fund managers’ expectations and their positioning: funds remain heavily overweight equities despite increasing pessimism over global economic prospects.

Global average All-in Sustaining Costs (AISC) in the gold mining industry increased by 10% y-o-y in Q2’21, reaching US$1,067/oz. This was also the third consecutive quarter in which AISC has risen. This cost inflation is being driven by several factors, both at the mine site and at the macroeconomic level.

Between 23:30 and 23:45 BST 17,538 contracts traded on Comex, low was $1677.90. Between 23:45 to Midnight a further 7,825 contracts traded and 5,705 in the 15 minutes that followed...

Our short-term gold performance model enables investors to dissect monthly gold returns into key drivers of investment demand. Different estimation windows provide additional insights on the varying influence of drivers over time. During May, our model shows gold’s performance was only modestly impacted by rates but they still remain a relevant driver this year.

There has recently been a lot of discussion and debate around the possible similarities and differences of gold and Bitcoin (and, by implication, other cryptocurrencies), and this has often included consideration of their relative environmental impacts and, specifically, their carbon footprints.

Listen to this podcast ‘Back to the gold fold’ for topics including US real rates, gold demand trends in consumer and investment markets, the COMEX market dislocation and the differences between gold and cryptocurrencies

Investor confidence in Germany recently jumped to a 21-year high, cheered by an acceleration of the domestic coronavirus vaccine programme and concomitant slowing of the domestic third wave of coronavirus. But while optimism for an economic upturn runs high, it brings with it growing fears of rising prices among inflation-wary German investors.

The volatility of numerous assets has shifted along with the performance of gold, which has recently rebounded to nearly flat on the year. Given this shift, we consider it important to assess the current gold market conditions from a volatility and derivatives perspective, along with what technical charts are suggesting about where gold could move in the near- and long-term. We believe that regardless of an investor’s gold sentiment, the following conditions are present and create an opportunity:

Net Managed Money positions in Comex gold futures increased again last week, although positions remain modest compared to highs seen in 2016 and 2019.