John Reade, Chief Market Strategist at the World Gold Council, comments on why gold-backed ETFs and Net Managed positions have bounced back following the release of the US’s inflation figures last week.
Gold has moved higher at the start of this week and is above its 200-day moving average for the first time since early February.
Buyers have returned to physically-backed Exchange Traded Funds – a key barometer of investor sentiment – and Net Managed money positions held on the Comex futures market jumped by 92t in the week to last Tuesday, the largest one-week gain seen since April 2020.
We believe investors started to cut gold holdings in November last year following signs that vaccines would soon start to end the Covid-19 pandemic. This profit taking, as investors moved to increase riskier assets, weighed upon gold but this may have run its course.
Last week’s much stronger than expected US inflation data – along with underwhelming jobs numbers and soggy retails sales has raised the spectre of a difficult dilemma for the Federal Reserve. It remains to be seen if Chair Powell can ignore transient inflationary pressures and remain focussed on the spare capacity in the US economy. With breakeven inflation expectations near the highs of this century while real Treasury yields sink to further negative territory gold is gaining traction from investors looking again to hedge against ‘interesting times’.