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Weekly Market Update

Gold at All Time Highs

Head of North American Investment Strategy & Research

Insight of the Week

In the past couple months, we’ve seen a breakout rally in Gold, bringing it to all-time highs. The price of gold is influenced by a multitude of factors, such as the strength of the US dollar, real rates, safe haven demand, gold ETF inflows/outflows, physical gold demand, and the supply of gold. It’s a complex set of forces and it’s interesting to note that the ongoing rally illustrates a decoupling from two of the biggest influencers of gold, the strength of the US Dollar and real rates. Gold usually has a negative correlation with real rates and a strong US dollar, both of which haven’t budged during the recent rally. However, general uncertainty along with ongoing demand from central banks have been supportive, enough to overcome those headwinds.

The above chart shows that central banks have been consistent net buyers of gold since 2010, accumulating over 7,800t over this period, while 27% of the total amount was bought in the last two years. In 2023, China (225 tonnes) emerged as the largest buyer followed by Poland (130 tonnes). Last year’s Middle East frictions between Israel and Hamas, in addition to the ongoing Russia-Ukraine conflict, spurred additional safe haven demand for gold. Further, countries like China and other BRICS nations have been buying gold to reduce their dependency on the US dollar in their foreign exchange reserves.

As gold remains at all-time highs, expectations of Fed rate cuts and a weakening dollar could turn them into tailwinds. Additionally, uncertainty around global economic growth and geopolitical tensions may also continue to support safe haven demand for gold. Overall, geopolitics remain an important topic for investors. To learn more about investing during potential geopolitics shocks, please read our latest research piece How to Position for Geopolitical Shocks in 2024.

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