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

Gold bullion’s momentum shifted negative in January (-1.1%) having rallied +11.6% in the last quarter of 2023.

The last quarter’s upward move was initially driven by heightened geopolitical risks (the conflict in Gaza) and was then sustained during November and December by investors positioning for possible US Federal Reserve interest rate cuts in 2024. This saw yields on 10-year US Treasury bonds fall by more than 100 basis points and the US dollar retreat by -5.0%. Real yields (the nominal yield on a 10-year US Treasury minus expected inflation) and the US dollar are the key fundamental drivers of the gold price (falling real yields and a weakening US dollar are tailwinds).

These forces reversed during January as investors pared their expectations for the timing and magnitude of interest rate cuts, driven by stronger than expected economic data in the United States.

Financial market gold investors responded by withdrawing US$1.8 billion (3.2% of gold holdings) from the world’s largest exchange traded gold bullion fund (GLD US). While this was the largest outflow since August 2022, it reflects an established trend, which we have written about separately on our website.

The price of gold bullion finished January at US$2,040 per ounce, just above its 50-day moving average price (US$2,034 per ounce). Despite the moderate pullback in January, from a technical perspective the gold price remains in an upward trend having hit a trough in early October 2023 (US$1,820 per ounce). While the current gold price is only 2% away from 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 structural inflation factors would imply the all-time high gold price in 2023 dollars would be US$3,000-3,500 per ounce.

Gold mining equities experienced their first major drawdown since September last year falling 9.8% during January. 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).

Silver (which has characteristics of both a precious metal and an industrial metal), fell by -3.5% in January, a second consecutive month of underperformance relative to gold. Gold outperformed silver by 13.8% in 2023, its largest annual outperformance since 2014. The price of silver finished January at US$23 per ounce (below its 50-, 100- and 200-day moving average). In contrast, the price of copper increased by +0.4% in January, its third consecutive month of positive returns. Copper finished January at US$8,501 per metric tonne (just below its 6-month high), despite sustained economic weakness in China (the world’s largest consumer of copper) and a slowing global economy driven by high interest rates.