Investment Insights

Developed market central banks are nearing the end of their tightening cycles.1 For now, market consensus points to a mild contraction in the US in late 2023 and slow growth in developed markets.

Gold in US$/oz returned just 0.1% in April, consolidating after a strong run up during Q1. Support for gold came from lower rates and positive ETF flows while lower inflation expectations and profit taking created a drag.

Cracks from unprecedented rate hikes are beginning to show, with US small banks and real estate sectors at the epicentre. Gold’s case just got stronger.

Gold shed 5.2% in February, as surprisingly strong US economic data propelled both yields and the US dollar higher. Global gold ETFs suffered more losses led by European funds while North American funds saw small outflows for the first time in two months. Recent futures positioning remains unavailable following issues with the data.

A falling US dollar was a significant contributor to gold’s 6.1% return in January and another positive ‘unexplained’ factor could be continued central bank buying or expectations thereof. Gold futures have also helped support the rally and, looking forward, we expect North American gold ETFs to continue seeing positive demand in coming weeks as historical analysis shows that positioning in futures tends to lead ETFs flows by two weeks.

Over the past three decades the gold market has undergone extraordinary change . The structure and dynamics of demand and supply are vastly different from those of thirty years ago.