WisdomTree
Gold Monthly
April 2024
Nitesh Shah
Head of Commodities and Macroeconomic Research, WisdomTree Europe
Nitesh is Head of Commodities & Macroeconomic Research, Europe at WisdomTree. Prior to the acquisition of ETF Securities in April 2018, Nitesh was a Commodities Strategist for the company. Nitesh has 20 years of experience as an economist and strategist, covering a wide range of markets and asset classes.
At WisdomTree he has been leading the research efforts in the commodity space, developing accessible publications targeted to a wide audience. His gold model and outlooks are widely anticipated by clients.
Gold propelled to new highs on the back of geopolitical risks
Gold reached a fresh high of $2,402/oz on Friday 12 April (Figure 1) when geopolitical risks escalated as Israel and its allies prepared for an attack from Iran. That missile and drone attack, which arrived on Saturday 13 April did not have any fatalities and damage was minimal, marking a sign of well-executed defence. Gold prices pared back to $2,350/oz by Monday 15 April, but it is unclear what Israel’s response will be. Should Israel and Iran enter a new overt war, rather than the war through proxies that we have become accustomed to since October 2023, geopolitical risks could scale higher. Although the US and other allies are encouraging Israel to maintain restraint, it is uncertain whether they will. Also, an embarrassed Iran could strike with greater vengeance next time it attacks. Gold is likely to maintain its safe-haven bid as a result.
Figure 1: Gold reaches fresh new highs
Market expectations for a June Federal Reserve rate cut have shifted out on the back of positive economic data, with notable strength in consumer price inflation. That has driven bond yields higher and US Dollar appreciation. These market moves are considered to be gold price negative, yet gold has hit new highs. That has perplexed many gold market observers. However, WisdomTree’s model approach to explaining gold price behaviour1 indicates that the price increase appears in line with gold’s fundamentals (Figure 2). Our model indicates that at the end of March 2024, gold should have increased by 13.4% year-on-year (y-o-y), basically matching the 13.2% y-o-y increase we actually saw. Higher-than-expected inflation supports gold prices, countering the bond sell-off and dollar appreciation. Moreover, the elevated geopolitical risks reflected in the higher speculative position in the metal, are a key driver of performance.
Figure 2: WisdomTree Gold Model
Elevated geopolitical risks are reflected in speculative positioning in gold futures (Figure 3). While there has been a notable rebound in the past month, positioning does not appear stretched by historical standards and is certainly far from 2020 highs.
Figure 3: Net specualtive positioning in gold futures
March inflation numbers printed in mid-April were a catalyst for Dollar appreciation and a bond sell-off. However, it looks like gold has outperformed both for some time (Figures 4 and 5). That underscores that gold prices are influenced by a number of drivers and univariate relationships have limited scope.
Figure 4: Gold vs real rates (Treasury Inflation-Protected Securities yield)
Source: WisdomTree, Bloomberg. January 1997 to April 2024. Daily data. Historical performance is not an indication of future performance and any investments may go down in value.
Figure 5: Gold and US Dollar basket
Source: WisdomTree, Bloomberg. June 2002 to April 2024. Daily data. Historical performance is not an indication of future performance and any investments may go down in value.
According to the World Gold Council, central banks bought 64 tonnes of gold in January and February 2024, which is 43% lower than the same period in 2023 but a fourfold increase on 2022. Noting that the full year 2022 was an all-time high for central bank buying, with more of the purchases taking place in the latter part of the year, it may be too early to say if the 2024 trend is so far indicative of what is to come later this year.
Chinese gold exchange-traded products (ETPs) continued to attract inflows, adding RMB1.2bn (US$164mn) in March and pushing total assets under management (AUM) to another record high of RMB35bn (US$5bn).
Chinese gold withdrawals from the Shanghai Gold Exchange totalled 522t during the first quarter, 57 tonnes higher y-o-y and the highest Q1 since 2019. Furthermore, withdrawals stand 43 tonnes above the 10-year average. Despite a weaker-than-usual March, the strongest January on record and the above-average February shored up Q1 wholesale demand. Active retailer replenishment ahead of the Chinese New Year, healthy consumption in early 2024, and elevated investment demand throughout Q1 were key contributors.
The People’s Bank of China (PBoC) reported the 17th straight monthly purchase in March, adding five tonnes to its total gold holdings, which now stand at 2,262 tonnes or 4.6% of total reserves. China’s gold reserves increased by 27 tonnes in Q1 2024.
1 See our model described in Gold: how we value the precious metal.