Demand was reserved for gold

Gold quotes on the global spot market have updated their maximum since April 2022. In many ways, bullish play is associated with a slowdown in inflation in the US and a weakening dollar. Professional investors do not believe in the stability of this trend, and therefore refrain from increasing investments in gold. However, their passivity is offset by purchases from central banks and jewelers.

On Tuesday, January 24, gold quotes on the world spot market updated a nine-month high.

According to Investing.com, in the course of trading, quotes reached $1,942.5 per troy ounce, the highest level since April 22, 2022.

The confident rise in prices continues for the third month in a row, and during this time the precious metal has risen in price by almost 19%. Only since the beginning of the new year, it has added more than 6% in price. On the Moscow Exchange, the price of gold reached 4,250 rubles. per 1 g, the maximum since the beginning of May last year, and 5% higher than the value of the beginning of this year.

Gold prices rose for a longer period in 2020, when, against the backdrop of the coronavirus pandemic, investors massively bought the precious metal as a defense against the expected acceleration of inflation against the backdrop of active support for the global economy by financial regulators. According to Bloomberg, from March to August 2020, the assets of exchange-traded funds investing in gold increased by almost 600 tons, to 3.4 thousand tons. During the same time, the price of the metal increased by more than 40% and reached a historic high of $2,073 per ounce.

The current recovery comes against the backdrop of a depreciation of the dollar and low demand from professional investors.

Since the beginning of November, the DXY index (the dollar against six currencies) has fallen by more than 10% to 102 points, which led to a revaluation of the value of gold. At the same time, gold ETF assets have fallen by more than 30 tons, to 2027 tons, returning to the values ​​of three years ago. Emerging Portfolio Fund Research (EPFR) data also speaks to the low interest of international investors in gold. According to Kommersant’s estimate, since the beginning of the year, the net outflow of funds from investment funds focused on investing in gold amounted to almost $1 billion.

The cautious attitude of investors towards such investments is associated with the continuing risks of unwinding a new round of commodity inflation due to the opening of the Chinese economy and a strong labor market. In the event of reinflation, according to investment strategist at Arikacapital Sergey Suverov, the Fed will again be forced to aggressively increase the discount rate, which could raise the dollar index, increase the yield of debt instruments, thereby leading to a decrease in gold prices.

However, sales from institutional investors are offset by high consumption of the metal by central banks and the jewelry industry.

According to the latest data from the World Gold Council, in November 2022, the central banks of various countries purchased almost 50 tons of gold for their reserves. “During the year, banks bought up physical gold, and in October we saw an uptrend prevail in the gold market, which continues to this day,” says Alexander Tsyganov, director of the investment and corporate business department at Tsifra Broker. Valery Emelyanov, an expert on the stock market at BCS World of Investments, notes the seasonal increase in demand for gold in China in connection with the New Year celebration, which coincided with the long-awaited end of lockdowns. “Industrial demand from China could well add momentum to gold,” says Mr. Yemelyanov.

Further dynamics of dollar prices for gold will depend on data on inflation in the US and the results of the February meeting of the Fed, at which most analysts expect a rate increase of only 0.25 percentage points, to 4.5-4.75%. “A stronger rate hike could lead to a stronger dollar, which is negative for gold. If the hypothesis of a possible reinflation is not confirmed, then not only an increase in prices for the precious metal is possible, but also a resumption of purchases by professional investors,” Sergei Suverov believes. Alexander Tsyganov believes that the upward trend in prices will continue and quotes will return to the highs of 2020 – $ 2-2.1 thousand per ounce.

Vitaly Gaidaev