Gold gained from risk, rates and momentum
Gold was one of the best performing major assets of 2020 driven by a combination of:
- high risk
- low interest rates
- positive price momentum – especially during late spring and summer.
Gold also had one of the lowest drawdowns during the year, thus helping investors limit losses and manage volatility risk in their portfolios (Chart 1).
By early August, the LBMA Gold Price PM reached a historical high of US$2,067.15/oz as well as record highs in all other major currencies (Table 1). While the gold price subsequently consolidated below its intra-year high, it remained comfortably above US$1,850/oz for most of Q3 and Q4, finishing the year at US$1,887.60/oz.
Interestingly, gold’s price performance in the second half of the year seemed to be linked more to physical investment demand – whether in the form of gold ETFs or bar and coins – rather than through the more speculative futures market. For example, COMEX net long positioning reached an all-time high of 1,209 tonnes (t) in Q1 but ended the year almost 30% below this level. We believe this was due to the dislocation that COMEX futures experienced in March relative to the spot gold price, making it more expensive to hold futures compared to other choices.
Investors’ preference for physical and physical-linked gold products last year further supports anecdotal evidence that, this time around, gold was used by many as a strategic asset rather than purely as a tactical play.