Can gold be a safe haven in volatile global equity markets?

2022-08-04 0 By

Stock markets around the world have been volatile as the Fed tapering looms and inflation continues to climb.Investors are starting to ask the question – where is the hiding place?Is gold, often vulnerable to higher interest rates but still considered a safe haven, the place to go?Recently, attention has been drawn to an anomaly: the rise in US real yields (nominal bond yields – inflation expectations) has coincided with a rally in gold prices.In general, as a non-interest-bearing asset, gold tends to rise when real yields fall, but it has been moving in the opposite direction lately, either because of a weaker dollar or a change in momentum in the market.A number of futures traders told reporters that technically, gold seems to break through, if it can stand on the resistance level of $1845 to $1855 and continue to rise, the market may hit $1950.Even if the gains are limited in anticipation of higher interest rates, they can be a useful tool to balance portfolio volatility.As of 16:52 on February 9, Beijing time, the international gold price was reported at $1828.15 / ounce.Louise Street, senior analyst for EMEA at the World Gold Council, told China Business News: “Rising interest rates have fuelled risk appetite among some investors and this has been reflected in outflows from gold ETFs.But purchases of gold bars and coins also rose as investors sought safe haven assets in response to central bank purchases.Central banks increased their gold holdings by a total of 463 tonnes in 2021, up 82% from 2020.”The Federal Reserve is expected to raise interest rates four to five times this year, and quantitative tightening (QT) is likely to start in June, but gold has not been deterred by expectations of higher interest rates in the near term.After falling as low as $1,753 in December, gold rebounded and broke through the key resistance level of $1,834 in late January, briefly touching the key resistance level of $1,840.Gold has eased back to around $1,820 recently as geopolitical risks eased a bit.But traders don’t see the end in sight for gold.Us 10-year real yields ended higher, starting the week at -48 basis points, on the back of last week’s stronger-than-expected US jobs data and hawkish Boe and ECB.The yield was also in deep negative territory of -117 basis points in mid-November 2021.”But the rise in real yields did not translate into a fall in gold prices, which continued to move up.”Tony Sycamore, a veteran commodities trader and analyst at City Index, told reporters that was partly due to a pullback in the DOLLAR Index.The dollar index retreated from its highs after last week’s ECB/BOE meetings, providing support for the downside of gold, which has an inverse relationship with the DOLLAR index.”It is also important to note that gold held its December low of 1753 despite the rally to a new high of 97.44 on the DOLLAR index, a classic example of a bullish divergence in the gold market relationship.”Mr Hickamore said that while the latest CFTC holdings data showed that net COMEX gold holdings by active funds more than halved last week, net long positions fell to a three-month low of 49,914.But the effect of short-term profit-taking may have been offset by demand from long-term investors, including central banks.For example, the largest gold-backed ETF, KNOWN as SPDR Gold Shares, recently saw its largest dollar-denominated daily inflows since its launch in 2004.Is expected from all walks of life, the United States will be published this week in the CPI will further climbed to 7.3%, from 7% last month, it seems to many traders and for 2018 years, the main driving force that gold would no longer be a real yields, but investors against a fiat currency devaluation or inflation and the stock market turbulence and geopolitical tensions and the power of buying gold.”Technically, the wedge that has plagued gold for the past six months is shrinking, warning that a breakout is imminent.”If gold manages to reach the resistance level of $1,845 to $1,855 and continues to rise, it could move up to $1,950.”Hickamore said.Most international investors see the fed funds rate rising from zero to around 2.25% this time around, but that doesn’t mean gold isn’t worth allocating.Under the environment of monetary tightening and high inflation, the fall or big shock of equity assets may be inevitable. Adding gold to the portfolio will play the role of stabilizer.Street also told reporters: “The price of gold can be affected by real interest rates, and that kind of market volatility is not good for gold.However, demand for gold as a hedge will persist because of the rise in inflationary pressures seen at the start of the year and the potential for a market correction.In addition, consumer and central bank demand are likely to continue to support gold demand.”It is worth mentioning that the World Gold Council recently noted that global gold demand has reached its highest level in nearly two years, which is closely related to the recovery of consumption and the mentality of consumers fighting inflation.According to the latest Global Gold Demand Trends report released by the Association, the total global gold demand in 2021 (excluding over-the-counter transactions) reached 4,021 tons, which has gradually recovered from the impact of COVID-19 in 2020.Global gold demand in the fourth quarter of 2021 was 1,147 tonnes, the highest quarterly level since the second quarter of 2019 and up nearly 50 per cent year on year.Global annual demand for gold bars and coins rose 31 per cent year on year to an eight-year high of 1,180 tonnes as retail investors sought safety amid rising inflationary pressures and ongoing economic uncertainty caused by the coronavirus pandemic.Meanwhile, the data also showed that global gold ETF holdings fell 173 tonnes in 2021 as some tactical investors scaled back hedging investments at the start of the year when the COVID-19 vaccine was introduced, and as rising interest rates made holding gold more expensive.”However, these outflows represent only a small fraction of the 2,200 tonnes of cumulative inflows into global gold ETFs over the past five years, suggesting investors will continue to focus on gold’s value as an important part of their portfolios.”Street told reporters.Among them, China is strong.Total holdings of Gold ETFs in China stood at 75.3 metric tons ($4.4 billion) at the end of 2021, the highest level ever.Domestic gold ETFs saw a net inflow of 14.4 tonnes in 2021, following inflows of 3.4 tonnes in the fourth quarter, in sharp contrast to the net outflow of 198.8 tonnes in western markets.China gold ETFs have recorded net inflows in all quarters except the second quarter.In terms of consumer demand, the global consumer demand for gold jewelry recovered in 2021, basically equal to the total of 2,124 tons in 2019 before the epidemic.This was helped by a strong fourth quarter, which saw global consumer demand for gold jewellery reach its highest level since the second quarter of 2013.It is worth noting that the average price for 2021 is 25% higher than it was in the second quarter of 2013, further underlining strong demand in the most recent quarter.China and India have always been big consumers of gold.China’s gold jewelry demand reached 675 tons in 2021, up 63 percent year on year and 6 percent higher than 2019.Buying gold is traditionally a popular consumption during the Spring Festival holiday, and this year is no exception.The reporter learned from a number of gold shopping malls in Beijing and Shanghai that gold sales in the seven days of the Spring Festival increased by more than 30% year on year, and among the buyers, the post-90s and post-00s accounted for a considerable proportion.Wang Lixin, CEO of WGC China, told reporters that gold jewelry demand in China grew 63 percent year on year in 2021, driven by stable economic growth, low gold prices and the popularity of high-weight products such as ancient gold jewelry.The power of global central banks is not to be underestimated.In total, central banks increased their gold holdings by 463 tonnes in 2021, up 82% from 2020.Central banks from both emerging and developed markets added to their gold reserves, taking global central bank holdings to their highest level in nearly 30 years.Going forward, how central banks respond to persistently high inflation levels will be key to influencing institutional and retail gold investment demand in 2022.At the same time, the current strength of the gold jewelry market could be stymied if the mutant strain of COVID-19 again limits consumer activity or undermines a sustained economic recovery.Author: Irene Zhou