And even. On closer inspection, the question is far from clear: why is gold suddenly going up right now?
After trading in a fairly stable range for months, bullion began to rise in early March. Since then, it has increased by 14% and left a series of daily records in its wake. But geopolitical tensions have been high for months, if not years, and the outlook for the timing of rate cuts by the Federal Reserve has become murkier in recent weeks. So what has changed?
Executives and seasoned analysts offer very different answers about who or what has pushed gold to unprecedented heights: Is it a central bank worried about the dollar’s role as an economic weapon? Are funds betting that the Federal Reserve’s shift toward lower interest rates is imminent? An army of algorithmic traders attracted to gold simply because its price is increasing? Stubborn inflation and fear of a hard landing? A weakening of currencies? Upcoming elections? All the foregoing?
The mystery has industry insiders digging into the plumbing of a massive global trade that stretches from futures and exchange-traded funds from New York to Shanghai to a massive over-the-counter hub in London and a global network of dealers selling bars, coins and jewelry to everyone, everywhere.
This is an opaque and complex world that has always been difficult to open up. Yet the market and regulators have worked for years to increase transparency, increasing access to data that sheds more light on the gravity-defying rally in one of the world’s oldest stores of wealth. world.Who buys?
First, the easy answer: central banks in particular, as well as large institutions and traders, are preparing for a move to softer rates. Chinese consumers are concerned about falling returns on other assets and currency depreciation. On the Reddit Inc. platform, self-proclaimed “stackers” boast of accumulating bars and coins. But these groups have been a consistent bullish force for months – or years in the case of central banks – and it’s unclear why any of them may be buying with a much greater sense of fear, d greed or exuberance. Analysts have better market data than they’ve ever had before, and yet the cumulative answer is frustratingly vague: it’s about everyone and no one in particular .
What are they buying?
One thing that’s clear is also a puzzle: Investors aren’t buying exchange-traded funds, one of the easiest ways to acquire gold. A steady stream of capital outflows from gold-backed ETFs suggests a significant cohort is missing out – or taking advantage.
“This is one of the most bizarre phenomena I have ever seen in the ETF space,” said Nate Geraci, president of ETF Store. “What is particularly interesting is that demand for gold has been very strong in other channels such as central bank purchases and direct purchases by individual and private investors.”
Citigroup Inc. blames profit-taking by long-term investors who bought years ago for why ETF net inflows have been particularly weak. The fact that regular, large capital outflows have not had a greater impact on prices also suggests strong demand for the bars they are selling – and central banks would be a natural buyer, according to Joe Cavatoni , which oversees World Gold. Council ETF Platform.
“There are other investors buying physical gold, so it has no impact,” he said in an interview. “Guess where this is going: to the OTC market, taken over by central banks. »
Where do they buy?
In large futures and over-the-counter markets, trading activity is increasing sharply, indicating that the usual institutional buyers – central banks, investment banks, pension funds, sovereign wealth funds – are involved. Options activity is also picking up, and bullion prices are expected to continue to rise as options dealers rush to cover their exposure.
The number of outstanding contracts on New York futures is increasing, a sign that fund managers’ long-term bets are on the rise. But overall trading volume has outpaced the number of open contracts, suggesting an increase in the type of frenetic day trading that algorithmic funds excel at.
When do they buy?
Mainly Mondays, Wednesdays and Fridays. The gold market is notoriously sensitive to changes in U.S. economic data, and this has become even more true since prices took off in early March. Major economic releases from those days offer indications of the strength of manufacturing, employment, GDP and inflation, and a concentrated burst of buying seen after the data release provides a strong clue about the identity of the most influential actors.
But that itself has confounded analysts as recent data has poured in and investors in the currency and bond markets have responded by betting that the Fed’s pivot would come later and be shallower than expected a few months ago .
In theory, this would be negative for gold, as high interest rates diminish the attractiveness of bullion relative to yield-bearing assets such as bonds. Investors are also pushing up the dollar, which has made gold much more expensive for buyers in major consumer markets: China and India.
Why are they buying now?
That’s the big question. The glaring hole in the story of the past five weeks is that while the Fed is still expected to begin cutting rates this year – which should benefit gold – many investors are actually less confident about the timeline than they are. were a few months ago.
One possibility is that some gold investors are instead focusing on the prospect of a hard landing in the U.S. economy based on recent data and rushing to buy bullion for its safe-haven role.
This idea could also explain another curious move in the gold market in recent weeks: the relationship between a closely watched gold price gap and U.S. Fed interest rates.
The percentage yield between London spot and three-month futures – which tends to follow interest rates due to the cost of storing, financing and insuring gold – has seen a rare decline below Fed rates in recent weeks as spot prices have climbed. Historically, this only happens sustainably when rates are low or about to fall sharply.
The inversion of spreads could indicate that nervous investors are clamoring to acquire spot gold now, to protect themselves against possible turmoil.
“The rally defies many conventional wisdom, especially when it comes to persistently high rates,” said Ole Hansen, head of commodities strategy at Saxo Bank AS. “I think the narrative is moving towards persistent inflation and perhaps a hard landing, laced with a lot of geopolitical uncertainty and deglobalization driving demand from central banks.”
And even. On closer inspection, the question is far from clear: why is gold suddenly going up right now?
After trading in a fairly stable range for months, bullion began to rise in early March. Since then, it has increased by 14% and left a series of daily records in its wake. But geopolitical tensions have been high for months, if not years, and the outlook for the timing of rate cuts by the Federal Reserve has become murkier in recent weeks. So what has changed?
Executives and seasoned analysts offer very different answers about who or what has pushed gold to unprecedented heights: Is it a central bank worried about the dollar’s role as an economic weapon? Are funds betting that the Federal Reserve’s shift toward lower interest rates is imminent? An army of algorithmic traders attracted to gold simply because its price is increasing? Stubborn inflation and fear of a hard landing? A weakening of currencies? Upcoming elections? All the foregoing?
The mystery has industry insiders digging into the plumbing of a massive global trade that stretches from futures and exchange-traded funds from New York to Shanghai to a massive over-the-counter hub in London and a global network of dealers selling bars, coins and jewelry to everyone, everywhere.
This is an opaque and complex world that has always been difficult to open up. Yet the market and regulators have worked for years to increase transparency, increasing access to data that sheds more light on the gravity-defying rally in one of the world’s oldest stores of wealth. world.Who buys?
First, the easy answer: central banks in particular, as well as large institutions and traders, are preparing for a move to softer rates. Chinese consumers are concerned about falling returns on other assets and currency depreciation. On the Reddit Inc. platform, self-proclaimed “stackers” boast of accumulating bars and coins. But these groups have been a consistent bullish force for months – or years in the case of central banks – and it’s unclear why any of them may be buying with a much greater sense of fear, d greed or exuberance. Analysts have better market data than they’ve ever had before, and yet the cumulative answer is frustratingly vague: it’s about everyone and no one in particular .
What are they buying?
One thing that’s clear is also a puzzle: Investors aren’t buying exchange-traded funds, one of the easiest ways to acquire gold. A steady stream of capital outflows from gold-backed ETFs suggests a significant cohort is missing out – or taking advantage.
“This is one of the most bizarre phenomena I have ever seen in the ETF space,” said Nate Geraci, president of ETF Store. “What is particularly interesting is that demand for gold has been very strong in other channels such as central bank purchases and direct purchases by individual and private investors.”
Citigroup Inc. blames profit-taking by long-term investors who bought years ago for why ETF net inflows have been particularly weak. The fact that regular, large capital outflows have not had a greater impact on prices also suggests strong demand for the bars they are selling – and central banks would be a natural buyer, according to Joe Cavatoni , which oversees World Gold. Council ETF Platform.
“There are other investors buying physical gold, so it has no impact,” he said in an interview. “Guess where this is going: to the OTC market, taken over by central banks. »
Where do they buy?
In large futures and over-the-counter markets, trading activity is increasing sharply, indicating that the usual institutional buyers – central banks, investment banks, pension funds, sovereign wealth funds – are involved. Options activity is also picking up, and bullion prices are expected to continue to rise as options dealers rush to cover their exposure.
The number of outstanding contracts on New York futures is increasing, a sign that fund managers’ long-term bets are on the rise. But overall trading volume has outpaced the number of open contracts, suggesting an increase in the type of frenetic day trading that algorithmic funds excel at.
When do they buy?
Mainly Mondays, Wednesdays and Fridays. The gold market is notoriously sensitive to changes in U.S. economic data, and this has become even more true since prices took off in early March. Major economic releases from those days offer indications of the strength of manufacturing, employment, GDP and inflation, and a concentrated burst of buying seen after the data release provides a strong clue about the identity of the most influential actors.
But that itself has confounded analysts as recent data has poured in and investors in the currency and bond markets have responded by betting that the Fed’s pivot would come later and be shallower than expected a few months ago .
In theory, this would be negative for gold, as high interest rates diminish the attractiveness of bullion relative to yield-bearing assets such as bonds. Investors are also pushing up the dollar, which has made gold much more expensive for buyers in major consumer markets: China and India.
Why are they buying now?
That’s the big question. The glaring hole in the story of the past five weeks is that while the Fed is still expected to begin cutting rates this year – which should benefit gold – many investors are actually less confident about the timeline than they are. were a few months ago.
One possibility is that some gold investors are instead focusing on the prospect of a hard landing in the U.S. economy based on recent data and rushing to buy bullion for its safe-haven role.
This idea could also explain another curious move in the gold market in recent weeks: the relationship between a closely watched gold price gap and U.S. Fed interest rates.
The percentage yield between London spot and three-month futures – which tends to follow interest rates due to the cost of storing, financing and insuring gold – has seen a rare decline below Fed rates in recent weeks as spot prices have climbed. Historically, this only happens sustainably when rates are low or about to fall sharply.
The inversion of spreads could indicate that nervous investors are clamoring to acquire spot gold now, to protect themselves against possible turmoil.
“The rally defies many conventional wisdom, especially when it comes to persistently high rates,” said Ole Hansen, head of commodities strategy at Saxo Bank AS. “I think the narrative is moving towards persistent inflation and perhaps a hard landing, laced with a lot of geopolitical uncertainty and deglobalization driving demand from central banks.”