February in review:

  • 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.

Looking forward:

  • Strong data in February reversed the four-month trends of most assets including gold
  • While a bout of economic strength can’t be dismissed, arguments that it was an exception and the US economy is on course for a more material slowdown are convincing
  • This should reinforce a solid case for gold for the remainder of 2023, as laid out in our Outlook.

US data lands a punch

Gold declined 5.2% to US$1,825/oz, returning close to where it started the year. With a stronger US dollar the major culprit, price declines were much milder denominated in other currencies (Table 1).

Weakness in price went hand in hand with a weakness in gold ETFs . European funds continued to lose assets while North American funds saw marginal outflows in February for the first time in two months. The Commodity Futures Trading Commission (CFTC) resumed publication of its commitment of traders report but with a considerable lag , showing that managed money net longs gained US$850mn (15 tonnes) at the end of January – a result consistent with gold’s performance that month. 

According to our Gold Return Attribution Model (GRAM) (Chart 1), gold’s weakness in February was driven by a rebounding US dollar, momentum factors and a surge in yields largely driven by a rally   in yields. Only a spike in US breakeven inflation provided a small cushion.


Chart 1: Higher yields and a strong dollar pushed gold lower in February*

Gold Market Commentary February 2023: Chart 1

Sources: Bloomberg, World Gold Council; Disclaimer

*Data to 28 February 2023. Our Gold Return Attribution Model (GRAM) is a multiple regression model of monthly 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 poignantly, 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 currently included in the model. Results shown here are based on analysis covering an estimation period from February 2007 to February 2023.

Table 1: Gold gave back most of its early 2023 gains during February

Gold price and return in different periods across key currencies*

 USD (oz)EUR (oz)JPY (g)GBP (oz)CAD (oz)CHF (oz)INR (10g)RMB (g)TRY (oz)AUD (oz)
28 February 2023 price1,8251,7257,9881,5182,4901,71948,49540734,4552,712
February return-5.2%-2.6%-0.7%-2.8%-2.7%-2.5%-4.3%-2.6%-4.8%-0.6%
Y-o-Y return0.6%1.8%4.5%1.1%1.3%2.5%0.5%1.1%1.5%1.9%

*Data to 28 February 2023. Based on the LBMA Gold Price PM in local currencies: US dollar (USD), euro (EUR), Japanese yen (JPY), pound sterling (GBP), Canadian dollar (CAD), Swiss franc (CHF), Indian rupee (INR), Chinese yuan (RMB), Turkish lira (TRY), and Australian dollar (AUD). Source: Bloomberg, ICE Benchmark Administration, World Gold Council

2023 case for gold intact

  • Surprisingly strong US economic data has driven a rebound in the dollar and bond yields. Markets  seem to be taking the data at face value with fears that more aggressive monetary policy is needed to tame inflationary pressures
  • Whilst this looks bad for risk assets and gold, which promptly reversed their respective four-month trends there are compelling arguments for why January data is no more than a blip and the prospect of an  economic slowdown remains on the table
  • Though not without risks, a good case for gold remains in place for 2023 driven by: elevated geopolitical risk; a developed market economic slowdown; a peak in interest rates, and risks to equity valuations. In addition, continued central bank buying can’t be ruled out.

Surprise rebound in data

Aggressive tightening and high inflation had pinned a Q2’23 recession tail firmly on the forecasting donkey last December, according to consensus readings. But expectations have become more optimistic with some predicting not a hard or a soft one, but no landing: the absence of a growth slowdown.   Two contributors to this change of heart were US employment and ISM survey data, and these strong numbers appear to have been backed up by other releases since. The unemployment data prompted former Fed chair and Treasury secretary Janet Yellen to profess

“You don’t have a recession with unemployment this low”

It appears at face value that an unprecedented tightening cycle hasn’t dented the robust economy and more tightening is needed to curb demand. These were the likely culprits in reversing the trends of most major assets, including gold, in February (Chart 2).  


Chart 2: Strong US data reversed the course for most assets in February

Gold Market Commentary February 2023: Chart 2

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

LBMA Gold price PM US$/oz, Bloomberg Energy TR index, Bloomberg Industrial Metals TR index, Bloomberg Agriculture TR index, MSCI US TR index, MSCI EM TR index, Bloomberg US Treasury index, Bloomberg US Corporate index, Refinitiv Venture Capital index, S&P Global Infrastructure index, FTSE/EPRA Developed index, ICE BofA 5+ Inflation linked index, DXY. Data from 30 September 2022 to 28 February 2023.


Chart 3: Cyclical unemployment lows have preceded (almost) every recession since 1971

Gold Market Commentary February 2023: Chart 3

Sources: Bloomberg, World Gold Council; Disclaimer

Monthly data as of January 2023.

While a bout of economic resilience can’t entirely be ruled out,   there are convincing arguments for why January’s positive surprises were a blip and that a soft or even hard landing may materialise, even if that can has been kicked down the road a bit. We tend to agree. These are (some) of the arguments: 1

The labour market is not signalling strength

First, to address Secretary Yellen’s comments. The data shows that a cyclical low in unemployment has always preceded a recession (Chart 3). 

Second, the unexpectedly large non-farm payrolls (NFP) job numbers was the latest in a line that have suggested an ebullient labour market for over a year. Yet the Household survey appears to disagree. (Chart 4)


Chart 4: Labour market resilience is questionable

Gold Market Commentary February 2023: Chart 4

Sources: Bloomberg, World Gold Council; Disclaimer

Monthly data as of January 2023.

Payrolls, as reported by employers, reflect the number of jobs held. The household survey counts the number of people employed. This suggests people holding multiple jobs have been on the rise, potentially to deal with the rise in prices, a trend that has limits and likely not reflecting a strong economy (Chart 4). In addition to this, the payrolls survey can subject to both large seasonal and statistical adjustment.

The bond market is pushing back on ‘no landing’

The yield curve is at its deepest inversion since 1981 and  an inversion has on average preceded every recession by between 9 and 18 months. The New York Fed’s own recession model has a higher probability of a recession than 6 of the last 8 recessions. The 10-year less 3-month yield spread inverted in December and was the last in a long line of spreads to go negative (Chart 5).


Chart 5: The bond market sees a recession ahead

Gold Market Commentary February 2023: Chart 5

Sources: Bloomberg, World Gold Council; Disclaimer

Quarterly data as of Q4 2022.

Financial conditions are in recession territory

Financial conditions are not as loose as often reported. Don’t look at market prices. Households and businesses are constrained, reporting recession-level tightness in lending standards and loan demand (Chart 6).


Chart 6: Financial conditions* are not loose

Gold Market Commentary February 2023: Chart 6

Sources: Bloomberg, World Gold Council; Disclaimer

*Net respondents reporting tightening standards, average of all series. Net respondents reporting strong demand: Average of all series from the Fed Loan Officers Survey. Monthly data as of January 2023.

Housing and real retail sales are on the ropes

Housing constitutes almost one fifth of US GDP according to the National Association of Home Builders. The unprecedented relative rise in mortgage rates won’t affect all home owners, as some have rates fixed for a long time and debt service levels remain low. But it does impact new buyers, those wanting to or needing to move and, more crucially, the health of the industry – captured by housing permits issues and housing starts (Chart 7).  


Chart 7: Unprecedented rise in mortgage rates hammering the housing market

Gold Market Commentary February 2023: Chart 7

Sources: Bloomberg, World Gold Council; Disclaimer

Freddie Mac 30-year fixed mortgage rate. Permits: Private housing authorized by building permits and housing units started from the US Census Bureau.

Retail sales beat expectations earlier in the month. But retail sales are a nominal figure. Households may be spending more, but they’re buying less. A lot less (Chart 8).


Chart 8: Households are spending more but buying less

Gold Market Commentary February 2023: Chart 8

Sources: Bloomberg, World Gold Council; Disclaimer

Quarterly data as of Q4 2022.

A recession could take a swing at equity valuations

In our 2023 Outlook  we presented  a consensus view of mild recession as a likely scenario but with a bias towards something more severe. The recent data has not dented that view  . A recession has historically been good for gold, with strong returns in five out of the last seven. Weakness in risk assets and accommodative interest rates have historically been primary drivers.

Equities are currently looking fragile, both relative to bonds and relative to history if a recession hits (Chart 9).


Chart 9: Equities are unattractive and overvalued if a recession hits

Gold Market Commentary February 2023: Chart 9

Sources: Bloomberg, Refinitiv Datastream, World Gold Council; Disclaimer

US equities: Dow Jones earnings yield less US 5-year Treasury yield. Monthly data as of 28 February 2023.

The outlook for gold is not without risks, however. For example, a resurgence in China’s growth could not only help growth elsewhere but could risk exporting another bout of inflation. In addition, the Fed, along with other central banks, may not be as ready to take the foot off the brake and lower rates. If accompanied by a fall in inflation, that could make real returns on bonds much more attractive than current levels. Real rates are currently parked between 150-180 bps,2  a level which has historically not been a headwind for gold (Table 2). Should they move much higher, then it could present a further headwind to the gold price  .

In summary

We maintain that the central scenario in our 2023 outlook is still  valid with a bias towards downside risk. Should data turn recessionary again, history suggests gold will benefit. With real bond yields still relatively low, equities on shaky ground and gold having retraced 30% of its September rally, the gold case is good and reward to risk is rising.  

Table 2: Current real rate levels not restrictive for gold

Gold returns in various real rate environments since 1971

Absolute rate level  
All levels9.70%5.50%
Negative rates10.70%6.70%
Moderate (0-2.5%)18.90%14.30%
High (Above 2.5%)2.20%-1.80%
Rate direction  
On hold9.30%6.50%

Real rate: US 5-year Treasury yield less 5-year UMICH inflation expectations from Aug 1971 to June 1997. US 5-year TIP yield from June 1997 to February 2023. On hold rates defined less than a 25 bps change (policy rate increment). Real gold price: LBMA Gold price PM in US$/oz deflated by US CPI index.
Source: Bloomberg, ICE Benchmark Administration, World Gold Council

Regional insights

China: In February, Au9999’s daily trading volumes averaged 13t, 29% lower m-o-m. It was a seasonal fall: wholesale physical gold demand usually softens after the Chinese New Year’s Holiday month when manufacturers actively replenish their inventories. On a y-o-y basis, there was a 5% rise. Our recent visits to major jewellery manufactures suggest improved vitality in Chinese gold consumption comparing to previous years. 

India: Indian retail demand improved in February supported by a 3% fall in local prices and wedding purchases. Unchanged custom duty in the Union Budget also bolstered wholesale restocking. Anecdotally, official gold imports are expected to rise in February following the anaemic 28-month low in January of just 11t.   

Improved market sentiment bumped local prices back into premium during the third week of February for the first time since November 2022. The average discount narrowed to US$4/oz from US$29/oz in January.

Europe: ECB now seen raising rates to a record-breaking 4% after a clutch of data releases showed Europe’s inflation pressure cooker continuing to build steam. Labour market resilience combined with falling industrial production keeps regional stagflation risk on the agenda. In the UK, BoE tightening is likely to slow: just one more 25bps hike expected as CPI decelerates, with the economy having only narrowly dodged recession last year. UK-listed gold ETFs shed 13t, a marked reduction from January’s 21t outflow, perhaps reflecting the approach of terminal rates.  

Central banks: In January, the latest data available, central banks collectively added a net 31t to global gold reserves  (+16% m-o-m). This was comfortably within the 20-60t range which has been in place over the last 10 consecutive months of reported net buying. Activity was relatively concentrated with only three banks accounting for gross purchases of 44t and one bank offsetting this with 12t of sales. Read more here.

ETFs: Global physically backed gold ETFs saw another outflow of US$1.7bn (-34t) in February, their tenth consecutive monthly loss (Table 3). European funds (-US$1.2bn, -25t) once again led global outflows whilst funds listed in North America experienced their first negative monthly flow (-US$547mn, -10t) in 2023. Meanwhile, Asian funds saw a mild outflow of US$4mn (-0.1t). However, funds in the Other region were spared as they registered another inflow of US$83mn (+1t).

Table 3: European ETFs continued to lead global outflows in February

Gold ETF holdings and flows by region*

 Total AUM
Fund Flows
(% of holdings)
North America101.2-547.41,725.9-10.1-0.58%
Global inflows / 
Positive Demand
 1,694.20 5.50.79%
Global outflows /
Negative Demand
 -3,403.90 -39.9-1.59%

*Data to 28 February 2023. On Goldhub, see: Gold-backed ETF flows.
Source: Bloomberg, ICE Benchmark Administration, World Gold Council


  1. This is not an exhaustive list. Various manufacturing surveys including the ISM new orders and from the Philadelphia Fed portray a similar environment.
  2. US 10-year TIP yield (156 bps), US 5-year TIP yield (168 bps), US 2-year TIP yield (180bps) as of 01 March 2023.