This has been a remarkable year for gold so far. Prices rallied in the spring, setting new records and trading above $2,600 per ounce for the first time.
What makes this rally so remarkable is the fact that it was not underpinned by the drivers which have been dominating the gold market for more than a decade: the US dollar, US bond yields and western world investment demand.
These factors have been absent for most of this year as the dollar stayed strong and bond yields high, keeping western investors out of the gold market as they were finding more attractive alternatives in high-grade sovereign bonds.
Instead, gold demand was dominated by emerging economies, most notably China. Investors returned to the gold market amid the pronounced weakness of the domestic economy in general and the all-important property market in particular.
Real estate has traditionally been the preferred asset in China, but falling property prices have kept investors away. Gold became the asset of choice for Chinese investors seeking a safe haven.
The same holds true for the People’s Bank of China. While it has been increasing its gold reserves for many years, buying accelerated following Russia’s invasion of Ukraine and the subsequent seizure of the Bank of Russia’s US dollar assets by the United States.
This has prompted China's central bank to become less dependent on the US dollar as a reserve asset and – in an extreme case – less susceptible to US sanctions.
According to our calculations at Julius Baer, China’s gold reserves are up almost 800 tonnes since the start of 2022, of which around 40 per cent was officially reported by the People’s Bank of China. The remainder is estimated based on exports from the UK to China, which were not recorded as imports, however.
According to the International Monetary Fund’s guidelines, monetary gold does not need to be recorded in official trade statistics.
Somewhat surprisingly, the People’s Bank of China has not reported any additions to its gold reserves since this April, while imports from the UK have also dried up during the summer.
While this has caused some concern in the gold market, the banking regulator has paused its gold purchases in the past.
We believe the big picture still calls for an increase of its gold reserves.
Firstly, the geopolitical tensions between China and the US are unlikely to disappear anytime soon, independent of the outcome of the US presidential elections. China’s desire to diversify its US dollar exposure should thus persist.
Secondly, despite its large-scale buying, China’s share of gold in its currency reserves remains at less than 5 per cent. This compares to a global average of more than 15 per cent and still leaves significant upside when measured on a tonnes-of-gold basis.
As China has been absent from the gold market for the past few months, the focus has returned to the US and bullion's ties to the US dollar and US bond yields have strengthened again.
Fears of a US recession have resurfaced while the country's Federal Reserve has begun interest rate cuts. As a result, western world safe haven seekers have started to tentatively return to the gold market, supporting prices around record levels.
While the logic of lower interest rates and higher gold prices seems clear at first sight, a closer look at all interest rate-cutting cycles since 1975 reveals that this relationship only holds if the US economy slips into recession.
In such cases, gold was up around 15 per cent on average one year after the first interest rate cut. If the US economy did not slip into recession, however, prices were down 7 per cent on average.
Looking ahead, the gold market is set against a very interesting backdrop, which can be summarised by the question: “Who is willing to pay more – western world safe haven seekers or the People’s Bank of China?”
As we do not see the US economy slipping into a recession and as we expect the tensions between China and the West to persist, we believe the Chinese central bank’s willingness to pay for gold as a hedge is much higher – not least because its motivation to add gold to its reserves is political, not economical.
Therefore, central bank gold buying should return as the dominant driver of the gold market, with western world investment demand primarily representing an upside risk.
Carsten Menke is head of next generation research at Julius Baer
Call of Duty: Black Ops 6
Developer: Treyarch, Raven Software
Publisher: Activision
Console: PlayStation 4 & 5, Windows, Xbox One & Series X/S
Rating: 3.5/5
INFO
Everton 0
Arsenal 0
Man of the Match: Djibril Sidibe (Everton)
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UAE currency: the story behind the money in your pockets
UAE currency: the story behind the money in your pockets
Points classification after Stage 4
1. Arnaud Demare (France / FDJ) 124
2. Marcel Kittel (Germany / Quick-Step) 81
3. Michael Matthews (Australia / Sunweb) 66
4. Andre Greipel (Germany / Lotto) 63
5. Alexander Kristoff (Norway / Katusha) 43
Sustainable Development Goals
1. End poverty in all its forms everywhere
2. End hunger, achieve food security and improved nutrition and promote sustainable agriculture
3. Ensure healthy lives and promote well-being for all at all ages
4. Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all
5. Achieve gender equality and empower all women and girls
6. Ensure availability and sustainable management of water and sanitation for all
7. Ensure access to affordable, reliable, sustainable and modern energy for all
8. Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all
9. Build resilient infrastructure, promote inclusive and sustainable industrialisation and foster innovation
10. Reduce inequality within and among countries
11. Make cities and human settlements inclusive, safe, resilient and sustainable
12. Ensure sustainable consumption and production patterns
13. Take urgent action to combat climate change and its effects
14. Conserve and sustainably use the oceans, seas and marine resources for sustainable development
15. Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss
16. Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels
17. Strengthen the means of implementation and revitalise the global partnership for sustainable development
India Test squad
Kohli (c), Dhawan, Rahul, Vijay, Pujara, Rahane (vc), Karun, Karthik (wk), Rishabh Pant (wk), Ashwin, Jadeja, Kuldeep, Pandya, Ishant, Shami, Umesh, Bumrah, Thakur
TOUCH RULES
Touch is derived from rugby league. Teams consist of up to 14 players with a maximum of six on the field at any time.
Teams can make as many substitutions as they want during the 40 minute matches.
Similar to rugby league, the attacking team has six attempts - or touches - before possession changes over.
A touch is any contact between the player with the ball and a defender, and must be with minimum force.
After a touch the player performs a “roll-ball” - similar to the play-the-ball in league - stepping over or rolling the ball between the feet.
At the roll-ball, the defenders have to retreat a minimum of five metres.
A touchdown is scored when an attacking player places the ball on or over the score-line.
Walls
Louis Tomlinson
3 out of 5 stars
(Syco Music/Arista Records)
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