Gold rose slightly in October, despite a risk-on environment and increases in short-term bond yields
Gold fell in September by 4% to around US$1,743/oz. This was the second consecutive month of declines, with gold now over 8% lower y-t-d. Gold wasn’t alone. Treasuries, Corporates, US- and non-US equities all fell in September possibly as a result of deleveraging. The Q2 level of margin debt for equities was at a record high. It would be understandable if some leverage has been removed as we head into the historically volatile month of October. And it’s quite possible that this de-leveraging has affected most assets (energy and industrial metals excepted).
Transitory or not, inflation is already impacting consumers
Gold fell slightly during August, down 0.6% in US dollars, on modestly firmer interest rates following strong US jobs data.
Equity yields support gold as investors position for historical September strength
Interest rates will likely remain key drivers of financial assets. Gold is no exception. Yet, the negative impact of higher rates will likely be offset by the longer lasting effects and unintended consequences of expansionary monetary and fiscal policies created to support the global economy.
Inflation fears and momentum ignite gold
Gold registered healthy positive returns for the second consecutive month, erasing the losses accumulated during Q1. Gold ended May at US$1,899.95/oz – its highest level since January and back above its 200-day moving average – representing a 7.5% m-o-m increase.
Inflation, falling yields and the US dollar pushed gold higher
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.
A sharp rise in US interest rates and a stronger dollar have weighed on gold recently. But a rebound in economic activity and a lower gold price have provided opportunities for consumers and strategic investors alike.
The COVID-19 pandemic raised uncertainty by both compounding existing risks while creating new ones. But by the end of last year, investors were optimistic that the worst was over.
Our new gold market outlook examines how the combination of high risk, low opportunity cost and positive price momentum looks set to support gold investment and offset weakness in consumption from an economic contraction.