WisdomTree
Gold Monthly
May 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.
Going for gold
As athletes worldwide prepare for the Olympics that will be hosted in Paris this summer, it appears that the lustrous metal is engaged in a sprint of its own and heading for gold. And markets hope that the metal doesn’t run out of energy too soon. Exchange-traded product (ETP) investors who had sat on the sidelines for some time are now starting to cheer the metal on in some corners of the world.
Gold hit a fresh high once again on 17 May 2024 at US$2402.60/oz1. Since its previous high on 12 April 2024 (at US$2401.5/oz), gold eased for most of the month on expectations of “higher for longer” interest rate expectations in the US. The March US consumer price index inflation, which was printed in April, was a catalyst for gold strength despite the elevated bond yields and strong dollar headwinds. The April CPI print produced in May didn’t have the same effect at the time it was printed, as it missed market expectations. However, a growing sense that it affords the US Federal Reserve (the Fed) to cut rates earlier has helped the metal move to a fresh high. Indeed, retail sales and industrial production data misses in April have also given the market more hope that one to two rate cuts will indeed be delivered this year (even if not the six the market was expecting at the beginning of the year).
Figure 1: Gold reaches fresh new highs
Gold has benefitted from both an easing of the US Dollar and falling bond yields in the past three weeks.
Figure 2: Gold and US dollar basket
Figure 3: Gold vs real rates (treasury inflation-protected securities yield)
Sentiment towards gold remains strong, with net speculative positioning hovering at the 230k handle since mid-April 2024.
Figure 4: Net speculative positioning in gold futures
Source: WisdomTree, Bloomberg. Weekly data from May 2019 to May 2024. Historical performance is not an indication of future performance and any investments may go down in value.
Chinese investment demand for physical gold has maintained strength over the past month. Chinese gold ETPs have seen inflows five months in a row. April attracted RMB9bn (US$1.3bn), the strongest month on record, pushing the total assets under management (AUM) to another historical high of RMB46bn (US$6.4bn). Meanwhile, holdings also registered the largest ever monthly increase, rising 17t to 84t.
However, jewellery demand in China cooled with the rapid rise in price. April is normally a period for retailers to restock ahead of the May Day Holiday (1-5 May). However, this year, retailers approached the period with caution given the higher prices and consumer price sensitivity. Indeed, Shanghai premiums over London prices have eased, indicating less willingness to pay over the odds for the metal.
Indian gold bullion imports more than halved y/y to 30t in March due to higher prices and weak consumer demand. Following the recent price pull-back, there has been a slight improvement in physical demand. However, volumes have remained weaker than in a normal period of weddings and ahead of Akshaya Tritiya (an extremely auspicious day to buy gold, which fell on 10 May this year).
As noted previously, global ETP flows have been negative over the past year, indicating that many institutional investors do not share the same level of enthusiasm for the metal as the retail market. However, Chinese investors have bucked this trend, as we noted above. In recent weeks, we have witnessed some strong flows into US-domiciled ETPs as well, possibly pointing to outflows reaching a base.
Figure 5: Gold price and ETP holdings
Source: WisdomTree, Bloomberg. Daily data from May 2023 to May 2024. Historical performance is not an indication of future performance and any investments may go down in value.
1 LBMA afternoon price