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 Indian government’s sustained campaign for improving overall tax compliance through a carrot-and-stick policy was reflected again in the 2021-22 Union Budget, with a few material announcements that impact gold.
Primarily driven by the COVID-19 pandemic and its far-reaching impacts, China’s gold demand in 2020 declined by 27% compared to 2019, the lowest recorded demand in a decade.
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.
Demand for gold loans, both through banks and non-banking financial companies (NBFCs) has grown in response to the economic impact of the COVID-19 pandemic.