First about gold – Is gold really expensive?

First about gold – Is gold really expensive?
First about gold – Is gold really expensive?

The contrasts in the gold market are currently more visible than ever before. Not long ago, historical highs were recorded at the level of just above 2430 USD per ounce, and a few days later, the largest daily loss in many years was recorded. In addition, gold is only 5% from historical highs, US yields are at 4.6%, and ETF funds have the least amount of gold since 2019. Doesn’t the price of gold above 2,300 USD per ounce seem too high in such extremes? Or perhaps the reversal of some conditions could fulfill the forecasts of some financial institutions about the price of the precious metal reaching USD 3,000 per ounce.

Central banks and individual investors are still buying gold

When analyzing commodity markets, we always pay attention to the relationship between supply and demand. In the case of gold, we have observed an excess supply of it for several years, but in this case it is not as big a problem as in the case of oil or industrial metals, which are not assets considered as stores of value. The world’s largest demand for gold comes from the jewelry sector, which, according to the total demand, probably exceeds 50%. It is worth noting that this demand is relatively stable, or its dynamic changes are not more pronounced from year to year. We observe significant changes in investment demand for physical gold and in central banks. Recently, according to these two groups, it has been increasing to 50%, but not long ago it was below 50%. If we include ETF funds that also invest in physical gold, their share at one point was close to 60%. This happened in 2020, when the huge liquidity in the market caused by the actions of central banks and the government during the pandemic led to a buying frenzy in many markets. Since then, investors have been withdrawing their funds from ETFs and turning to the stock market or, more recently, even to the cryptocurrency market. Could the US rate dream change this trend?

Fed eats food, but pesto wants to cut rates

Gold has been toiling at high levels in the last few months, despite the sharp rise in annual interest rates in the US and in the rest of the world’s major economies. This situation showed that gold retains its value even in times of great uncertainty regarding the continued fight against inflation. However, speculation about dream rates that appeared at the end of the year led to gold settling permanently above the $2,000 per ounce mark. In addition, the dream of rates, or rather their dreams in previous years, caused the growth of the price of gold. So it might seem that he was doing something similar to the dream rate window leading to a further rise in gold prices. In this case, however, there was a series of coincidences in the form of a number of geopolitical conflicts in the world, which, together with the growing demand for gold, supported its growth. If the tension persists and there is a dream of annual rates, it should strongly stimulate the desire to buy gold, even on the part of ETF funds, which represent the last leg in the building of several years in the precious metal market.

Does geopolitics mean anything to gold?

The war between Russia and Ukraine has sent gold prices above $2,000 an ounce. However, from March 2022, the most important factor for the direction of gold price movement is the dollar’s behavior and income. The situation changed in January of last year, when the conflict between Israel and Hamas began, which involved several other hot cities in the Middle East. In general, geopolitics has a limited influence on gold in the long term, but if it goes hand in hand with an increase in demand for gold from hedge funds, then the situation takes on a completely different form. Funds have significantly increased the number of long positions in futures contracts, although their numbers are still far from the extreme high levels we saw in 2020. This shows that there is potentially room for further growth, especially if we look at the day in n.

she went crazy for gold

na has long been one of the largest consumers of gold and is trying to beat India in this regard. At a time when the whole world is trying to move away from the US dollar and diversify its reserves, it is looking for gold. nsk lidov banka buys gold nepetrit it 17 msc. Currently, it is in 6th place in terms of the amount of mined gold, but it is not far from overtaking countries like Russia, France or Italy. In addition, it is often speculated that the official purchases of gold by the PBOC represent only a fraction of the actual purchases.

The folly took place on the German futures market, where the number of long positions in gold exceeded 300,000 contracts and reached the highest values ​​in history, corresponding to more than 300 tons of gold. Compared to the arrest of 2023, this is a doubling of long positions. It is supposed to be related to the collapse of cryptocurrency trading and the general trend of looking for a safe bet before the uncertainty associated with the ever-high inflation, the geopolitical situation in the Middle East, the tension between the US and the US, or the upcoming presidential elections in the US.

How is the risk for gold?

The risk for the price of gold is definitely a full de-escalation of the geopolitical situation in the world, which would reduce the demand for safe assets. On the other hand, stock markets become very overbought, so market risk becomes very high. The second factor that threatens gold and other metals is the potential return of high inflation, which would prompt the central bank to move towards raising interest rates. Of course, it can be argued that gold seems to be overvalued after reaching historical highs, but if we consider this metal in relation to the prices of other assets, such as oil, the S&P 500 index, or in relation to the huge balance sheets of central banks, it seems that honey has more growth ahead of me. USD 2,500 per ounce should not be far away, and several financial institutions are predicting that USD 3,000 will be the basic target even for 2024. Of course, you should keep in mind that any investment in gold should only be the entire investment portfolio and the investment itself must be approached in a long-term context. If we take the example of five-year or ten-year investments in the last 30 years, there were very few situations when the income from such investments was disputed.


X-Trade Brokers

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The article is in Czech

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