Like most asset classes, gold is being affected by the unprecedented economic and financial market conditions in play around the globe. We believe that recent volatility in the gold price has been driven by massive liquidations across all assets, and likely magnified by leveraged positions and rule-based trading.
Gold has also likely been used to raise cash to cover losses in other asset classes because:
- it remains one of the best performing asset classes year-to-date (y-t-d), despite recent fluctuations (Chart 1)
- it is a high quality and highly liquid asset, trading over US$260 billion (bn) per day in March1
Thus far, selling appears more concentrated on derivatives in exchanges and over-the-counter (OTC). While gold-backed ETFs have experienced outflows in recent days, flows remain positive for the year. Funds across regions have seen US$3.6bn of net inflows in March, giving a collective total of US$11.5bn y-t-d (Table 2).2
Looking ahead, we believe the deceleration in economic growth will undoubtedly impact gold consumer demand and gold’s volatility may remain high, but high risk levels combined with widespread negative real rates and quantitative easing will be supportive of gold investment demand as a safe haven.