With rallying gold prices maintaining a steady price level above the $2,000-per-ounce line for the last few weeks—breaking performance levels of the last 11 months—gold ETFs and retail interest are now following suit, according to Standard Chartered.
“Interest across tactical, ETF, and retail investors surges in March and there is scope for further growth,” Suki Cooper, a precious metals analyst at Standard Chartered, explains.
Tactical positioning has spiked over the last two weeks more than it has since June 2019. ETF performance rates finally turned a positive corner for the first time in the last 10 months. Analysts expect these signals are only the beginning of tsunami performance rates for gold prices on the horizon.
Investor flows showed that the net positioning “rose by 82,8000 lots, the largest increase over a two-week period since June 2019,” Cooper continues.
The collapse of Silicon Valley Bank triggered this sharp uptick. When the United States’ 16th largest commercial bank failed on March 10, it sparked a banking crisis throughout the nation, Europe, and parts of Asia. What became a global event of numerous institutions failing allowed gold to acquire the traction needed to finally breach that stubborn $2,000-per-ounce line that it’s been struggling to surpass for nearly a year.
The current rise in gold ETFs beginning with the fall of SVB traces back to short-term covering activity (accounting for 51,000 lots) and fresh longs (accounting for 32,000 lots).
“Net fund length has surpassed 100,000 lots for the first time in seven weeks but is well below its peak at 292,000 lots, suggesting further upside,” Cooper explains. “Total metal held in trust across the gold ETPs is set to mark the first month of inflows in 10 months.”
With holdings still substantially below their record highs, Standard Chartered expects more growth in the near future. Gold ETFs are not the only commodity on the rise though, as retail interest also showed substantial performance jumps following the events on March 10. The U.S. Mint’s reports displayed 187,500 ounces of gold coin sales in March, the highest figure reported in the last decade.
The United States is not the only nation with extremely high bullion demand levels right now. Spain recently began an expansion program that will allocate $43 million to the Spanish National Coin Factory (FNMT) to increase gold coin minting. Investors in the nation and around the globe have been spiking demand levels, so the nation promptly responded with a plan to purchase more raw gold to mint more coins so they can meet the rising investor needs.
“The need for wealth protection in the global inflationary environment remained a primary motive for gold investment purchases,” the World Gold Council explains.
“Continued weakness in the U.S. dollar, growing recession risks, a continued high bond-equity correlation, and elevated geopolitical risk form the backbone of a positive tactical case for gold in 2023.”
The World Gold Council explains gold’s rise perfectly in this statement. Typically, gold faces two primary challenges that prevent it from rising at substantial rates: the equity market and successful U.S. dollar performance rates.
“The USD normally benefits from safe-haven demand, and USD strength has been a notable hurdle to gold, but our macro strategists note the current storm is not USD-positive. Equity-market volatility has in the past pushed down gold as a liquid asset amid margin calls, but equity markets have started to firm,” Cooper explains further.
Gold’s traditional roadblocks have all seemed to dissolve at once.
“Local gold prices in India have re-tested all-time highs, surpassing INR 59,000/10g, and prices in China are re-testing all-time highs above CNY 440/g. India’s market has firmly moved to a discount, and local market participants expect China’s market to shift to a discount as demand has come under pressure from high prices,” Cooper continues.
Standard Chartered forecasts another 25-basis-point interest rate hike in May, followed by an additional 25-point increase later in the year. “Gold positioning is in stark contrast to that ahead of the final Fed rate hikes during the 1995 and 2000 hiking cycles, with current positioning the highest it has ever been at this stage of a hiking cycle,” Cooper explains. “This time, much of the ‘good news’ for gold may be priced in early.”
Gold closed April 13 at $2,039.83 per ounce, with a potential dip coming soon following recent labor report announcements and future rate hikes, meaning now may be the right opportunity to purchase before the next price spike. As always, investors should consult their financial advisors before making any portfolio decisions.