Another Month, Another Set of New Highs. Gold Finised March at Us $ 3,115/Oz, a month gain of 9.9% and 9.3% in Us and Australian Dollar Terms, Respectively. Gold’s Stellar Performance Across All Major Currencies Is Even More Remarkable Given The Significantly Weaker Us Dollar and The Strengthening Euro, (Table 1).
According to our Gold Return Attribution Model (Gram)Euro Strength, Thus Us Dollar Weakness, Was on Again A Key Driver of Gold’s Performance, Alongside an Increase in Geopolitical Risk Capturing Tarif Fears, (Chaart 1).
Gold ETF Buying Continued Apace in March With all regions controlting. Us Funds Led
Australian Etf Funds Attracted US $ 78 Million in March, The Fourth Concecutive Net Inflow Since Last November, Contrabing to a 6.7% Rise in Demand Over Q1 (The Strongst Quarter Sinke Q3 2020 when Holdings Went Up 17%).
While Etf Flows Were Positive, Comex Futures Declined Marginlly by US $ 400 Million (Five Tonnes) – Likely on Profit Taking.
Post-Covid Markets Hooked on Artificial Support
Liquidity Has Arguably Bolshed Both Financial Assets and the Us Economy for Much of the Post-Covid Perod. Fiscal Spending Programs Arguably Propped up job Creation via Godnment and GodNMENTENMENMENMENMENMENMENMENMENMENMENMENMENMENTENTENTENTENTENTE JOBS, (Chart 2). Capital Markets Were Also Aided by Fiscal Liquidity Provisions Combined with a Continulation of the ‘Monetary Backstop’ from the Fed. This is the treasury bond risk premium to well below its pre-carvid average, at the night time Keeping equi Multiples Well Above their Pre-Covid Averages, (Chaart 3).
But there are severral key Contrasts Between the Current Scenario and that of 2022, where the Fed’s First Rise Rise in Years SignalDED The End of a Long Period of Fiscal Easing and the Start of Inflationry Pressure Across Most Developed Markets.
Back then, Us Financial Conditions Tightned Forcefully As Liquidity Was Removred from Markets as Center Banks HICED Rates to Target Inflation. This CoINCIDED with a Perfect Storm that Saw a Verry Rare Joint Decline in Bonds and Equits (a 60/40 Blend of S & P 500 Stocks and Us Treasuries Droppedd, As Did Economic Activity). Gold Held up but also Experienced some bumps along the way. It initially Fell 20% Over Two Quarters in 2022 Before Making A Recovery to End the Year Flat.
We are now at a similar imipasse in liquidity crystions
While Much of the Conversation in Recent Weeks has center on tariffs, Liquidity Risk Remains an Important Undercurrent.
Quantitative Tightning Is Slowing, but there has been Been no Mention of a Resump of Quantitative Easing. Indeed, The Apptite Might Not Bere, Given The High Levels of Debt and Sticky Inflation. In Addition, Constaints on Goovernment Spending Via The DePartment of Goovernment Efficience (Doge) are stifling Fiscal Support.
And the Fed’s Overnight Reverse Repo Facility (on RRP) is located, which provides less wigge room for the Fed to Manage Liquidity Issues. This as followers to be showing up in stats like one-book Liquidity for Equity FUTERES As Flagged in the Fed’s Financial Stability Report in November 2024- ON-THE-Run Bond Liquidity (Ie The Ease to Trade Recently-Messted Us Treasury Securities, which is also the most liquid). It mayo be controlling to the year-to-date equity rout.
And the Labour Market is Flirting with Contracting as Hours Worked are in STEEP Decline. Logically, this leads to an employment slodown as compancy Reduce Hours for Staff Before Layoffs; Statistically This Anso Appars to Be the Case. But Layoffs are also now rising and are Likely to soon be refleted in paayroll numbers. To add to this, unfurtyy surrounding tarifs has supercharged Concerns about the Resilience of Labour Markets in the Short and Medium Term.
Similar but difference
Even if we See a Similar Drying Up of Liquidity, It’s Likely to Be Direct to 2022, Becuse:
- While Infance was RISING More in 2022, IT WAS Driven by Growth. This time around, inflation is sticky which Growth Is Faltering, Resulting in a Stagflationry Environment. In this context, Rates are not Likely to Lift Further from here and the US Dollar Should Fall, at Laast in the Short-term, as Us Exceptionalism Waves.
- Central Banks’ Bullion Buying Efforts Have Been Strong Contrabors to Gold’s Performance Over the Past Three Years and This will Likely Continue, Adding Fundamental Support to Prices.
- Us Gold Etf Investors Had Built Up Sizeable Holdings in 2020 before the 2022 wobbles. But they have been sidelined unel recently, suggesting capacity to keep adding.
Gold’s Fundamentals Remain in Place …
The Current Run-UP in PRICE HAS TAKEN MANY by Surprise. Paraphrasing An Old Adage, Should’s High Prices for a Commodity Cure High Prices? Gold is not a commodity in the Traditional Sense and Primary Production’s Response May Day only Limited Impact on PRICE. Given Current Extreme Policy Uncetainment, The Willingness to Hold and Reluctance to Sell Couelf General Real Momntum. By Historical Standards, The Current Rally Isnt Particularly Large or Long.
Further, Comparling The Current Rally to the Peaks of 2011 and 2020 Highlights that Fundamentals Look More Solid, and the Environment Remains Supportive of Further Gains, (Table 3).
- Us Gold Etfs Are A ConsidlyBly Smaller Share of All Us Et Assets Than During 2011 AS ETF Buyers have been
- Real yields are highher and about their light-run average, Suggesting More Download Than Upside Risk for Yields-and Vice Versa for Gold Prices.
- Forward Equity Price-To-Earnings Remains High, Providing Capacity for Further Download to Equits Shroud An Economic Slowdown and Earnings Downloads Worsen, Especialy in the Current Geo -conomic Conditions, A BOON For Gold’s Safe-Haven Appal.
- Credit Spreads are ConsiderBly Tighter Than During the Two Previoous Peaks. AGAIN, Widening Risks Trump Contraction Risk, and Are also Gold Supportive.
- The Dollar Remains Elevated Relative to Prior Periods, Even if it has weakened sink the Start of the Year. With the Trump Administration Favouering a Weaker Dollar and the Unclein Effect of Tariffs, this cound service as an adductional tailwind for Gold.
… but not there
We also ca interceing that there are risks for the Gold PRICE After A Rallly Such As this in Such a Short Space of Time.
Treasury Managers at Central Banks Cououl Prudently Slow their Pace of Buying Given The PRICE RALY, as we save with some center banks Last Year. While Consumer DEMAND ADANDS to Highher Prices EventUlly, The Speed ​​of PRICE MOVES is Likely to Dampen Net Buying in the Near Term. A Liquidity Crunch Counter Negatively Affect Gold As the Most Liquid Assets Are Sold to meet Margin Calls. AdditionLly, Geopolitical and Policy Nervousness Is Elevated, Particularly Given Signicant Unceptainty About Tarifs and their Effect on Market Voltility, Whiche is Likely Adding A Meaningful Premium to Gold Prices. Any Resolution Course Reduce that Premium, as Seen in Previous Historical Periods.
In Conclusion
The Extent and Speed ​​of Gold’s Rally Have Drawn Comparisons to Previous Peaks, (CHART 4). While there are headwinds the Gold Market Must Navigate, Toyay’s Macro Backdroprop Differs Signific Longer-TERM Prospects.
Marissa Salim Is a Senior Research Lead, Apac, AT World Gold CouncilA sponsor of first This Article is for generation and edgesal purposes only and dos not amount to direct or indirect investment advice or assistance. You have a succal or services The Risks Associated with Any Investment Decision.
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