The gold price has shot up since the end of February, with the LBMA Gold Price PM trading at US$2,180.45/oz as of 11 March – a 6.5% increase m-t-d. Gold has reached consecutive record highs six days in a row and flirted with US$2,200/oz last Friday (8 March) in intra-day trading.
Chart 1: Gold reaches new highs in early March
LBMA Gold Price PM in USD per ounce*
*As of 11 March 2024.
Source: Bloomberg, ICE Benchmark Administration, World Gold Council
Gold’s sharp increase has since caught the attention of market participants. The initial trigger was linked to a weak ISM print in the US on 1 March,2 pushing bond yields and the US dollar down.
But that can only explain so much, so what’s behind gold’s move since? Our analysis, using a weekly version of our Gold Return Attribution Model (GRAM), indicates that gold’s performance can partly be explained by a few factors:
- US dollar weakness against both developed and emerging market currencies3
- An increase in market volatility
- More bullish COMEX investor positioning
- A drop in 10-year US Treasury yields.
Chart 2: Gold’s recent move can be partly explained by the USD, risk and momentum
Key drivers of gold’s return by week*
*Data to 8 March 2024. Our Gold Return Attribution Model (GRAM) is a multiple regression model of weekly gold price returns, which we group into four key thematic driver categories of gold’s performance: economic expansion, risk & uncertainty, opportunity cost, and momentum. These themes capture motives behind gold demand; most importantly, investment demand, which is considered the marginal driver of gold price returns in the short run. ‘Unexplained’ represents the percentage change in the gold price that is not explained by factors already included. Results shown here are based on analysis covering an estimation period from 19 March 2021 to 8 March 2024.
Source: Bloomberg, World Gold Council
There is, however, a good portion of gold’s recent performance that can’t be explained by GRAM which - as with any other model - depends on the strength of historical relationships. As such, there are a few other factors that may explain the additional increase.
Firstly, gold’s rapid increase and its surge above a series of technical resistance and psychological levels from US$2,050 to US$2,100/oz likely served as a catalyst to cover short option strategies and drove further tactical investor interest. COMEX net long positioning – used by GRAM - comes with a lag and may not yet capture this data, although it could be inferred by more timely information on Open Interest.
Secondly, there’s also activity in the OTC market that may not be reflected in COMEX positioning or gold ETF flows but that likely provided further fuel to the market.
What’s next?
The key question now is how sustainable gold’s rally is.
On the plus side, gold started March aided by strong Chinese demand during the Spring Festival. And central banks have continued with their buying spree in 2024. In fact, we have highlighted in previous reports that gold’s strong performance over the past few years can be partly explained by geopolitical risk as well as robust central bank purchases – which are often reported with a lag. Finally, upcoming expiries in options markets may bring additional investment flows if the gold price remains above key psychological levels such as US$2,100/oz, which can be supported by continued US dollar weakness.
On the flip side, the upcoming US Federal Open Market Committee meeting will shed light on the Fed’s appetite to loosen monetary policy amidst downward revisions to previous non-farm payrolls reports and a slight uptick in unemployment.4 And while the market is not currently expecting a rate cut in March, a more hawkish stance by the Fed may create short-term headwinds for gold. In addition, rapid gold price movements typically discourage gold jewellery consumers, who may choose to wait for volatility to subside.
Footnotes:
1As of 11 March 2024, based on the LBMA Gold Price PM USD.
2US manufacturing contracts further, rays of light on the horizon | Reuters.
3The US dollar weakness has been supported by additional soft economic releases and expectations of interest rate differentials between the US and other regions.
4Feb US payrolls show labor market healthy but not overly tight | Reuters.
This article is a re-post from here.
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12 Comments
Over the long term, gold's been terrible bet with no income.
Clownish comment. You talk about gold in the long term and give an example in days.
Gold is all about timing. The 70s bull run could have returned 20x. 2000s bull run 8-10x approx. A current bull run possibly started in 2014. And this potentially could be the biggest bull run ever.
People don't really understand gold because of the narratives they've been told by fiat spruikers who don't get to clip the ticket on those who own gold.
Well I can show you a couple of charts, long-term, and you'll see how disastrous it's been for goldbugs. With zero dividend, and the cost of storage. Ever met a rich goldbug?
I haven't.
https://www.macrotrends.net/1333/historical-gold-prices-100-year-chart
https://www.macrotrends.net/2608/gold-price-vs-stock-market-100-year-ch…
Ever met a rich goldbug?
Many. High net worth individuals are more likely to own gold as a savings instrument than the hoi polloi.
Anyway, back to my point is that gold's 'price' escalation is all about timing. But there's another issue. Most people don't understand price. They think prices go up purely because of supply and demand. They don't really understand price in terms of fiat currency debasement.
\With new investment technology I can buy paper gold anywhere in the world from the comfort of my office, I don't need to be gouged buying the stuff from shifty precious metals salesmen. I can even buy gold ETF's that don't own one ounce of gold for the cost of a contract note.
Goldbugs are obsessed with 'fiat currency debasement', but smart people don't keep their money in cash...they keep it in property, shares or interest-bearing assets.
Sure. You can own claims on gold as opposed to physical gold. I would personally recommend to make sure you know what you're buying.
About being a 'smart person' about protecting wealth from currency debasement, that all depends on your benchmark. Goldbugs can also own property and shares. They might also own Bitcoin.
Let's have a look at one of the best performing stock indexes right now - the Nikkei 225- vs gold:
Past 12 Months:
N225 - +44%
Gold - +25%
Past 5 Years
N225 - +79.5%
Gold - +124%
So gold is the clear winner in terms of max absolute gains across these two time frames. Does it mean the N225 performed comparatively badly? No.
Gold 'experts' like Peter Schiff have predicted US$20,000 gold for years. The scams that go on are outrageous, and goldbugs seem to love being emptied out. They reckon there's one born every minute.
https://www.youtube.com/watch?v=RhO3dgSOO9o
Who cares? As I demonstrated above, a Japanese owner of gold would have been far better off than in JGBs, JPY (and any other fiat currency), the Nikkei 225, almost any Japanese REIT.
The only asset where they would have really been better off is Bitcoin -- +2,128% over the same time period. And ratty is a kind of digital gold.
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