Insights

Record central bank gold buying last year shone a spotlight on the past, present and future of gold as a reserve asset. There are compelling reasons to expect continued buying from this sector

A ceiling on interest rates and headwinds to trend growth make a compelling case for gold in the medium term.

Gold prices weakened in February. There was a 5% decline in the LBMA Gold Price AM in USD during the month. Meanwhile, due to a 3% depreciation in the RMB against the dollar, the SHAUPM in RMB saw a smaller fall of 1%

Gold prices kicked 2023 off to a strong start. The SHAUPM in RMB registered a 2% gain in January and the LBMA Gold Price AM in USD rose by 5%.

The divergence between the RMB and USD gold prices widened. The weakening US dollar and lowering yields helped pushed the LBMA Gold Price AM in USD 7.4% higher in November, the best month since July 2020.

Average all-in sustaining costs (AISC) in the gold mining industry increased by 1% q-o-q in Q3’22, reaching a new record high of US$1,289/oz.

The domestic gold price diverged from the international gold price: the MCX Gold Spot price rose marginally by 0.2% compared to a 2% decline in the LBMA Gold Price AM in USD

Gold’s price divergence continued: the Shanghai Gold Price Benchmark PM (SHAUPM) in RMB rose by 1%, while the LBMA Gold Price AM in USD saw a 2% fall in October.

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...