We share our latest observations on global asset markets in relation to T8 Gold

All movements are expressed in United States (US) dollar terms, unless otherwise stated.

Gold bullion (+2.5%) continued its upward move during April, notwithstanding its two key macroeconomic drivers moving in a direction, and by a magnitude which would ordinarily have resulted in a major headwind for the gold market. The US dollar strengthened (the trade weighted US dollar index +1.7%) and Treasury yields in real terms (the nominal yield minus expected inflation) moved sharply higher (the nominal yield on 10-year US Treasury notes increased by 48 basis points, driving the implied real yield 40 basis points higher) following higher than expected inflation readings which pushed out expectations for rate cuts. We have written about this in more detail in a separate note.

We believe the gold price is being driven by central bank gold buying, which you will recall we have been writing about since it first showed up in official statistics in the third quarter of 2022. Official statistics reported to the end of March indicated that central banks have accounted for 23% of total demand so far during 2024, significantly above the post-financial crisis average of approximately 10%.

China’s central bank bought gold for an eighteenth consecutive month in April, increasing its gold holdings to 4.6% of its foreign reserves. China’s gold reserves remain significantly below the global average of 16%, the United States at 71%, the Euro area (including the European Central Bank) at 58% and even the average of emerging market central banks at approximately 6%. This highlights the potential for China to continue increasing its gold holdings, and materially so.

We believe we have observed a structural upward shift in central bank gold buying (you will recall that we have written about this previously).

The true impact of this change in central bank behaviour continues to be masked by financial market participants in the gold market (gold-backed exchange traded funds) liquidating positions. Bullion outflows from exchange traded funds (ETFs) continued with flows equal to 9% of total gold supply and marking the eleventh consecutive month of net outflows. We believe this trend (which we have written about previously) is maturing and the likelihood of a reversal is increasing.

April saw global gold ETF holdings fall 33 tonnes to 3,079 tonnes, the lowest since February 2020 in volume terms (although by value, the higher gold price resulted in the value of holdings increasing 3% to US$229 billion, the highest since April 2022) and 6% below the prior 12-month average.

Below the surface, Europe experienced its eleventh consecutive month of outflows, while North America and Asia captured inflows. Asia registered its fourteenth consecutive month of inflows, with Chinese financial market investors the main driver. In China, gold ETFs witnessed a record month of inflows (+US$1 billion) and eclipsed their all-time high in terms of value of assets under management (+36% year-to-date).

Physical demand from the remainder of the gold market (the jewellery, technology, bar and coin, over-the-counter and other segments) was reported to be in line with 3-month average levels.

The price of gold bullion finished March at US$2,286 per ounce (+2.5%) and silver at US$26 per ounce (+5.3%) and both remain in an uptrend from a technical perspective, having hit a trough in early October 2023 (US$1,820 and US$21 per ounce, respectively). While the current gold price has achieved a new all-time high in nominal terms, it remains well off its all-time high in real terms (achieved in January 1980). We note that economists attempt to adjust for structural inflation factors (inflation not captured in government inflation data). Adjusting for these factors would imply the all-time high gold price in 2023 dollars would be US$3,000-3,500 per ounce.

Gold equities (+6.1%) and silver equities (+12.4%) followed bullion prices higher. The index of gold mining stocks remains at valuations that we believe is a roughly 25-year low in terms of discount to gold bullion (based on the spread between the spot gold price and the gold price implied by the market price of the equities). Further, a headline in the FT during April asserted that gold miners had rarely been cheaper over the last 40 years (than the present time).