Gold did not turn out as income – Kommersant
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The assets of gold exchange-traded funds have updated at least since March 2020, approaching 2.8 thousand tons. Interest in the metal is declining amid rising US Treasury yields to multi-year highs due to heightened expectations of a further hike in the Fed’s key rate. As a result, the price of gold dropped to a five-month low, fixing below $1,900 per troy ounce.
According to Bloomberg, at the end of last week, the assets of exchange-traded funds (ETFs) investing in gold approached the level of 2.8 thousand tons, updating the minimum since March 30, 2020. The continuous decline in assets continues for 12 weeks in a row, and during this time they have decreased by more than 120 tons, and since the beginning of August alone, the reduction has amounted to almost 30 tons of gold.
The latest Emerging Portfolio Fund Research (EPFR) data also speaks to the lack of interest of international investors in gold. According to Kommersant’s estimate, based on a Bank of America report (taking into account EPFR data), the total volume of funds withdrawn from gold funds for the week ended August 16 amounted to $400 million. In general, investments in gold funds have been declining for the 16th week in a row, and Since the beginning of August alone, net sales have totaled nearly $2.5 billion.
Sophia Kirsanova, Portfolio Manager at Pervaya Management Company, notes that traditionally, gold in investors’ portfolios acts as a hedge against inflation, if the rates on debt instruments do not exceed the expected growth rates of consumer prices. At the same time, if last year the key inflation in the US was in the range of 6-6.6%, and the Fed rate rose from 0% to 4.5%, then this year the advantage is on the side of rates. At the end of July, inflation in the US amounted to 3.2%, while the key rate reached 5.5%. Given the improving macroeconomic picture in the country, there is a possibility of further growth in rates. “Corporations are reporting better-than-expected earnings growth, the labor market is gaining momentum, but so is inflation. In this combination, the Fed has more and more opportunities for a painless rate hike,” notes Valery Yemelyanov, an expert on the stock market at BCS World of Investments.
Under such conditions, more reliable government bonds are more attractive for investment. Last week, the yield on ten-year US Treasury bonds (UST) reached 4.33%, the highest since 2008. On Friday, it stopped at 4.251%, having added 28 bp since the beginning of the month. p. “Essentially a risk-free asset (UST.— “b”) has become dramatically more profitable, which, of course, cannot but affect the investment attractiveness of gold,” notes Dmitry Skryabin, portfolio manager at Alfa Capital. According to Sophia Kirsanova, now bonds are much better at protecting against inflation than gold.
Russia retained gold reserves
The reserves of monetary gold in the international reserves of the Russian Federation in July – the second month in a row – did not change and remained the same as of August 1, 2023 – 74.9 million ounces (2329.65 tons), according to the materials of the Bank of Russia. The value of gold in reserves for July 2023 increased by 2% to $145.7 billion as of August 1. And its share was 24.71%.
In March this year, the Central Bank resumed the publication of data on the volume of gold in the international reserves of the Russian Federation after a year-long break.
At the end of 2022, the reserves of monetary gold in the international reserves of the Russian Federation decreased by 0.14% (-3.1 tons). In 2021, stocks increased to 2301.6 tons. In 2020, they also increased, up to 2298.5 tons. In 2019, the Bank of Russia increased gold reserves by 7.5% (+158.6 tons). In 2018, the Central Bank bought 273.715 tons of gold. “Prime”
An increase in UST yields, combined with a decrease in investor demand for the precious metal, has a negative impact on its value. According to Investing.com, on Thursday, the price of gold fell to its lowest level since mid-March, at $1,884.5 a troy ounce. On Friday, the price consolidated near the level of $1889.4 per ounce, which is almost 2% lower than the previous week’s close. Gold also falls on the rise of the US dollar against the world basket. “Since mid-July, the DXY index (the dollar against six currencies) has gained more than 3%, which is quite a lot for him. The dollar has not appreciated at this rate since February,” notes Mr. Yemelyanov.
On the Moscow Exchange, spot prices for gold last week fell to the values of four weeks ago – 5480 rubles. for 1 gram. On Friday, prices consolidated near the mark of 5675 rubles. per 1 gram, which is almost 7% lower than the values of the end of the previous week. A stronger drop in ruble prices is associated with a decline in the dollar on the local market – the dollar lost 5.7% over the week, dropping to 93.76 rubles / $.
Further dynamics of gold prices will depend on a combination of US rates, the dollar, inflation and the prospects for an increase in the Fed rate. “It’s paradoxical that now the acceleration of American inflation is not in favor of gold,” concludes Valery Yemelyanov.
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