Key highlights:
- The gold price rebounded 4.5% on the month,1 as inflation concerns grew and the US dollar weakened
- Gold remains down 6% y-t-d, but has moved up closer to the psychologically important US$1,800/oz level
- Sentiment via COMEX futures increased as net positioning rose 10% off March low
- Outflows in gold ETFs continued, but slowed considerably in April – less than a fifth of those seen in March
- China gold investment activity was muted in April as reflected in lower local trading volumes,2 but jewellery demand could receive a boost from postponed weddings
- Surging COVID cases in India are raising concerns that the demand recovery seen in Q1 will slow
- Swiss gold exports hit 10-month high in March, driven by higher demand in Asia
- Looking forward, we expect inflation concerns and the direction of rates to remain an important driver of gold prices, while rising COVID cases could weigh on consumer demand but support investment.
Most asked investor questions:
- As an alternative to bonds, can gold serve as a portfolio hedge against downside risks?
- Could gold benefit from a renewed interest in total return strategies?
- What would influence gold’s performance more: high rates or high inflation?
- How will stronger consumer demand impact gold’s performance?
Gold rebounded as inflation concerns rose and dollar weakened
Marking a turnaround from the first three months of the year, gold rebounded 4.5% in April to finish the month at US$1,768/oz - its highest monthly closing level since January and its first positive monthly return since December 2020. While gold is still 6% lower y-t-d, its strong April performance was echoed across several key currencies throughout the month (Chart 6, p. 8). Gold found resistance at US$1,800/oz during the month, suggesting it might need an additional catalyst to move above that level.
Sentiment towards gold was positive in the futures market, with net long positioning3 on COMEX recovering from the 30 March low (the lowest level since 2019). Net longs grew to 540t (US$31bn), 10% higher in tonnage terms than at the end of March.4 While the move was positive, it might be too early to conclude that it represents a significant bullish shift given that net positioning remains low compared to recent levels. Adding to this, while outflows in gold-backed ETFs continued throughout April, they did so at a much slower pace as European funds saw net inflows for the first time since January (Chart 9, p. 4).
Our short-term gold return model indicates that gold’s performance in April was primarily driven by a combination of inflation concerns, softer rates, and a weaker dollar (Chart 1).