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).
Climate change is both a physical reality and a rapidly growing systemic and existential risk that all aspects of society are currently learning to address. It is now widely understood that greenhouse gas (GHG) emissions must therefore decrease very rapidly – ultimately, to ‘Net Zero’ – if we are to avoid potentially catastrophic consequences. The process of decarbonising the economy is such an urgent priority that it is currently reshaping nearly all policy, business, and investment decisions.
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.
Reflation is good for commodities and even better for gold.
The current global economic landscape indicates improving economic conditions, higher inflation and rates expectations, as well as commodity supply shortages which are likely to support commodity performance.