Over the past two months, economic growth has disappointed even as inflation has exceeded expectations. A real risk of stagflation, with rising costs amid lower growth, appears to be on the cards.
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).
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.