Gold may face similar dynamics in 2022 than those from last year as competing forces support and curtail its performance.
The shift to risker and less liquid assets strengthens the case for an allocation to gold, given its unique combination as a highly liquid, low-volatility asset.
Gold rose 2% in November based on the LBMA reference price, rallying early in the month before giving up most of those gains in the following weeks.
Together with our partners at OMFIF, we have written a report on the development of central bank digital currencies (CBDCs) and the implications for the gold market. CBDCs can potentially enable a wide range of new features. Money can become programmable, allowing policymakers to incentivise certain spending behaviours that can optimise economic impact or address social concerns. The trackable nature of CBDCs can also help to deter financial crimes. The ability to easily deploy “helicopter money” may also spark concerns about inflation.
Gold rose slightly in October, despite a risk-on environment and increases in short-term bond yields
Q3 gold demand down 7% to 831t
ETF outflows outweighed continued recovery in other sectors
Fuelled by the COVID-19 pandemic, Australia’s already declining cash target rate dropped to 0.1% in 2020, the lowest since 1990. This led to a reduction in Australian superannuation fund allocations to cash and bonds and an increase in risk-on assets, such as equities, in the hunt for returns. But will this move help achieve their desired returns at reasonable risk levels?
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).