We share our latest observations on global asset markets regarding T8 Gold

Gold bullion (+0.2%) was under pressure during February, trading down 2.3% intra-month before rallying to finish more or less where it started.

The key drivers were macroeconomic factors, led by bond yields (US 10-year Treasuries +34bps) which drove real yields (the nominal yield on a 10-year US Treasury minus expected inflation) to increase 19bps. Combined with a strengthening US dollar (the trade weighted US dollar index +0.9%), both factors were headwinds for the gold price and were the result of investors tempering their expectations for the timing and magnitude of US Federal Reserve interest rate cuts, coincident with resilient economic, inflation and employment data as well as commentary from the central bank.

In terms of physical flows of gold bullion, financial market gold investors continued to liquidate physically-backed gold ETFs during the month with total assets declining by 1.8%. Notably, February marked the ninth consecutive month of net outflows. We believe this trend (which we have written about on our website) is maturing and the likelihood of a reversal (which may ultimately be triggered by the first interest rate cut from the US Federal Reserve) is increasing. Asia was the only region to experience net inflows during the month.

The price of gold bullion finished February at US$2,044 per ounce and remains in an uptrend from a technical perspective, having hit a trough in early October 2023 (US$1,820 per ounce). While the current gold price is very near to its all-time high in nominal terms (achieved in December last year), it remains well off its all-time high in real terms (achieved in January 1980). We note that various 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 (-6.3%) and silver equities (-9.4%) were under pressure throughout the month, in line with broader metals and mining indices (-5.5%) and other interest rate sensitive equity market sectors. The index of gold mining stocks remains at valuations that we (and a number of other industry participants) believe is a 25-year 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).