Ben Laidler, global markets strategist at the eToro trading and investment platform.
The expert analyzes the recent rise in gold prices as a result of the uncertain situation.
However, he notes that the move higher "has dramatically broken zero-yielding gold's long-standing correlation with real and nominal US bond yields," which "introduces some near-term vulnerability for gold if risks cool." geopolitical”.
“However, the broader outlook is supported by the likelihood that bond yields will decline and the dollar will weaken in the coming months, against a backdrop of continued strong demand from central banks,” he explains.
Risk for the gold rally
GEOPOLITICS: Gold has been the safest haven amid growing geopolitical uncertainty and the great wall of worry, benefiting from its lack of credit risk, its negative correlation with risk assets and its millennia-old track record. Its rise back towards $2,000 per ounce has outperformed other traditional havens such as the US dollar and, certainly, bonds. This move has dramatically broken gold's longstanding zero-yielding correlation with real and nominal US bond yields (see chart). This introduces some short-term vulnerability for gold if geopolitical risks cool. However, the broader outlook is supported by the likelihood that bond yields will decline and the dollar will weaken in the coming months, amid continued strong demand from central banks.
DISCONNECTION: Global economic policy uncertainty is high and geopolitical risk is increasing. This “new normal” may continue to underpin safe-haven gold demand and supports a modest paradigm shift in the traditional correlation between bond yields. Additionally, the speed of movement in bond yields may have stoked fears that something is broken in the global economy, boosting demand for gold. The world's two largest gold buyers are also favorable. Chinese investors have been diversifying their investments in their contested local property market, driving a record $120/oz "Shanghai premium" last month, while India is entering its "buying season," characterized by strong festivals.
FUNDAMENTALS: Central bank purchases have reached record levels and are very supportive. China is leading this trend and has increased the weight of gold in its foreign exchange reserves, which exceed 4% and are worth $3 trillion. But this is not enough, as central banks only represent 20% of the total market and are dwarfed by demand from jewelry and technology (45%) and other investors (35%), which remains weak. ETFs such as the $55 billion GLD have seen modest outflows until very recently, while gold mine supply has been growing strongly in the background, up 7% in the last quarter, and encouraged by the persistence of high prices.
Source: Territorioblockchain.com
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