Gold Nuggets: You Say Jump, Gold Says How High?

The midsummer shift by the Fed from tightening to easing was not the only factor behind gold’s recent rise.

The price had been building a head of steam long before the Fed move.

Can the gains be sustained? Only time will tell.

George Milling-Stanley
Chief Gold Strategist, State Street Global Advisors

In my role as Chief Gold Strategist for SPDR ETFs, I spend a lot of time on the road talking about gold with financial advisors and their clients. It’s always my hope that they feel they are learning something from my decades of experience in the gold business, but there’s one thing of which I am absolutely certain—I learn plenty from them. Each meeting gives me insight into what is on the minds of investors, and my role is to try to help them navigate today’s increasingly perilous financial markets. In my new blog series, Gold Nuggets, I want to share some of the most intriguing conversations, unconventional viewpoints, and common concerns or questions that come out of those interactions.

It’d be hard not to notice that gold has recently jumped $150 an ounce, marking its highest level in more than six years.1 It’s top of mind for almost everyone that I speak with these days. In my view, although the markets have given Federal Reserve (Fed) Chair Jerome Powell almost all the credit for the recent jump in gold price, gold had been building up a considerable head of steam for some time prior to the FOMC July rate cut. The rate cut was simply the final signal the gold market had been waiting for to confirm a move to sharply higher prices.

Let’s look at some of the other factors behind the jump in gold. Three indicators from the emerging markets are very important:

  • Jewelry demand in the emerging markets (EM) typically grows fastest during periods of strong economic growth, such as the early years of this century, when gold moved up steadily from $250 an ounce to $1,250 from 2001 to 2010.2 Economic growth in emerging markets has been patchy at best over the past few years, but jewelry demand has remained surprisingly resilient. There were signs of softness in June this year, but up to that point, demand showed surprisingly little adverse effect from poor economic performance.
  • Second, over the past five years or so, there has been solid growth in pure investment demand in emerging markets. There has always been an element of store of value or preservation of wealth behind much of the jewelry purchases in this market, but the growth has been in gold-backed ETFs in countries where these are available, and in the traditional small bars and coins elsewhere.
  • Finally, emerging market central banks have been significant buyers of gold for official reserves for almost 10 years, with net purchases averaging around 10%3 of total demand. Last year, central banks—primarily in emerging markets—provided 15%4 of total demand, and this year they are on track to buy even more.5 This trend of emerging market central banks largely reflects a desire to diversify away from an overdependence on US Treasuries, which currently represent over two-thirds of EM official reserves, and to include more gold, which currently represents only 5% of reserves. The countries whose economic success emerging nations aspire to emulate, such as the US and Germany, hold more than 70% of their official reserves in gold.6

These three developments in the emerging markets supported the gold price as it traded within a narrow range from spring 2013 to June of this year. That trading range sat between $1,150 at the bottom and $1,350 at the top. There were occasional moves outside of these parameters, but they were not sustained, so I will treat them as outliers and ignore them for the purposes of this discussion. Once the final signal came from the Fed after its June meeting, the head of steam gold had been building proved explosive and the price moved up swiftly through the resistance zone—from $1,350 to $1,400, and then topped $1,500 shortly thereafter.

I believe what has been happening to the demand for gold in the emerging markets provides a solid foundation for the recent jump in price. That being said, there are plenty of other factors that support the rising price of gold; we live in an era of considerable uncertainty—both macroeconomic and geopolitical—and historically, gold has thrived during uncertain times. But an examination of those other factors will have to wait until my next contribution.


World Gold Council, Goldhub - Price and Performance Statistics. Based on LBMA PM Prices, the price of gold increased from US $1,351.25 on 06/14/2019 to US $1,506.50 as of 08/07/2019.

Bloomberg Finance L.P. and State Street Global Advisors, 03/01/2001—12/31/2010.

World Gold Council, Goldhub, Central Bank Statistics, December 2018.

World Gold Council, Goldhub, Central Bank Statistics, December 2018.

World Gold Council, Goldhub, Central Bank Statistics, June 2019.

World Gold Council, Goldhub, Central Bank Statistics, June 2019.


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This material is for your private information. The views expressed are the views of George Milling-Stanley and are subject to change based on market and other conditions. The opinions expressed may differ from those with different investment philosophies. The information provided does not constitute investment advice and it should not be relied on as such. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon.

This material is for informational purposes only and does not constitute investment or tax advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information.