This year marks 50 years since the end of gold’s formal link to currency. In the half-century that has passed since this milestone, the world has evolved in ways that were probably unimaginable to the political and economic leaders of that time. As the world has changed, so too has the role of gold. Whereas central banks steadily sold down their gold reserves for several decades after the end of the Bretton Woods system, they have since re-emerged as net buyers of gold for the past eleven years, with emerging market countries leading the way.
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
Q2 gold demand flat, H1 down 10%
Strong consumer demand recovery and Q2 gold ETF inflows were not enough to offset heavy Q1 outflows.
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.
Strengthening consumer demand mitigated the impact of ETF outflows as global economies continued to recover
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.
Gold benefits from diverse sources of demand: as an investment, a reserve asset, a luxury good and a technology component. It is highly liquid, no one’s liability, carries no credit risk, and is scarce, historically preserving its value over time.