Adam Perlaky

Commodities are on a tear in 2022, driven by consumer spending, supply chain issues and most recently, tensions with Russia. 

We’ve regularly discussed rates and inflation in 2021 as two key drivers of global markets. With lower expected future returns on fixed income, these drivers give credence to the idea that many institutional investors would need to move further out on the curve (take more risk) and/or use leverage to meet their financial obligations. Both of which now appear to be happening.

Gold’s price has dropped by almost 7% since the end of May. Most of the move can be attributed to an increase in interest rates following last week’s US Federal Reserve (Fed) FOMC meeting. Gold’s reaction is not surprising given that it has experienced higher sensitivity to interest rates over the past year

The volatility of numerous assets has shifted along with the performance of gold, which has recently rebounded to nearly flat on the year. Given this shift, we consider it important to assess the current gold market conditions from a volatility and derivatives perspective, along with what technical charts are suggesting about where gold could move in the near- and long-term. We believe that regardless of an investor’s gold sentiment, the following conditions are present and create an opportunity:

Interest rates have been a key driver for gold in both 2020 and 2021. As interest rates have moved higher, the gold price has decreased… but higher inflation expectations may provide some support for gold.

In this video, Adam Perlaky explores our latest gold ETF data and commentary and discusses the remarkable year that gold ETFs had in 2020.

While gold held important support levels of around US$1,850/oz for the past four months, it broke that level yesterday and has continued lower today, near US$1,800/oz, as the perception of market risks fall.

Two major commodities indices -The S&P GSCI and Bloomberg Commodity (BCOM) Index - recently announced that for a second year in a row, their weighting of gold will increase.

Today, we released the September and Q3 2020 gold ETF flows report as gold ETFs surpass 1,000 tonnes of new demand in 2020.

We often discuss the fundamental drivers of gold as being a function of economic expansion, risk and uncertainty, opportunity cost and momentum.

This morning we released the Global gold-backed ETF flows report for April which highlighted gold-backed ETFs had inflows for a sixth straight month.

Today we released our analysis on gold-backed ETF flows for the first quarter of 2020, as well as the month of March.

This week, we launched our February 2020 ETF flows report, which highlights the positive impact current market volatility is having on investment flows in gold-backed ETFs.

The stock market embraced the weakest one-week performance since the financial crisis last week on the back of growing concerns of the continued spread of the coronavirus across the globe. Despite the risk off-moves, gold was lower by more than 3% last week, which is historically unusual during these types of movements. There are a few potential reasons for the weakness.

Gold stands apart from the broader commodities complex because of its unique market dynamics and performance drivers.