Gold gains around 15 per cent in value since start of March

Gold gains around 15 per cent in value since start of March

the price of the precious metal gold has
accelerated since the 1st of March
gaining roughly 15% in value investors
have flocked to the safe haven as
geopolitical risks intensify around the
world and central banks purchase more
bullion Ross Greenwood caught up with
John Reed senior market strategist at
the world gold Council to understand
what has been causing gold to do so well
the most recent driver that we’ve seen
really since the 1 of March has been
speculative buying on the KX Futures
Market in the United States supported I
guess um by a bit of safe ha and demand
associated with uh Iran’s attack on
Israel but that speculative buying on
comx wouldn’t have been able to happen
if it hadn’t had for two other major
factors Central Bank purchases which
have been really strong since the middle
of
2022 and then over the last few months
really strong retail demand for gold in
China both in jewelry but especially in
investment okay let’s go to China to
begin with because it’s not just China
it seems as though they’re wning some
sort of a hedge away from the US dollar
uh it’s also um it’s also India it’s
also turkey uh that have also been very
strong purchases at a central bank level
of
gold sure and the increase in Central
Bank purchases we’ve seen over the last
two years has been associated with what
I describe as a soft
dollarization a move away by central
banks from holding the vast majority of
their reserves in US Dollars towards uh
a different mix now that different mix
in time will probably include um the
currencies of major Emerging Market
powers like China like India Etc but
those currencies aren’t really ready yet
for Reserve currency status so gold is
acting as a decent proxy until they do
and and why it’s a good proxy is because
while the international monetary fund
recognizes gold uh as a central bank
reserve asset and also gold demand is
driven by the economies uh of these two
countries India and China um the second
and largest uh consumer of gold so that
satisfies a lot of requirements I think
for central banks that are beginning to
slowly reduce the amount of US dollars
in their portfolios okay so the central
banks are reducing the amount of dollars
in their portfolios but it seems also
that even consumers are doing the same
thing even in the United States there’s
a move away from holding physical
dollars to holding as you say as gold as
a as a proxy for it sure uh although it
is interesting that the the strength
we’ve seen uh in Gold hasn’t really been
driven by Western buying over the last
12 months and in fact there’s been a
pretty big slowdown in the appetite from
North American well us and northern
European uh buyers of physical coins and
small investment bars so this really has
been an Emerging Market phenomena that’s
been driving gold uh over the last two
years and that’s probably why gold has
been able to ignore the typical drivers
that would have been a headwind for it
the strength of the US dollar High
interest rates the fact that the FED
isn’t is no longer expected to cut as
much maybe even at all as it was a few
months ago gold Shrugged off all those
factors and has continue to hit a series
of new all-time highs and then take me
to the supply side of gold is there any
real suppression of the supply side
given the fact obviously with gold
prices being so strong it makes a lot of
Minds that might have been otherwise
questionable now become really decent
prospects it it certainly helped uh
there’s no doubt that high prices have
made marginal mines or marginal all
bodies within within otherwise
profitable mines able to be exploited
but to be honest the gold price has been
high for a couple of years the gold
mining industry has been doing pretty
well it’s now just doing very well so I
don’t see an enormous Supply response
coming from these higher gold prices
because I think the gold mines were
pretty much accessing everything that
they could already and in terms of
bringing new mines and projects on
stream the lead time on these is
anything from 3 years to 15 years so
we’ll only see the impact of these
really strong prices starting to kick in
in a few years time we do expect uh gold
production probably to break the
all-time high this year but that
all-time high was set back in 2018 so I
think the the the way I think about mind
production is that it’s been plateauing
for the last six or seven years and now
has the potential I guess in the medium
to longer term to to expand if mining
companies uh pull the trigger on some of
these new projects uh that they that
they’ve been considering so then you
talked earlier about you know the the
the friction in the world the
geopolitical situation Ukraine Russia
the sanctions on Russia um but then also
China of course and its relationship
with the United States I I just wonder
how much of this is safe haven buying by
people in some of those countries that
may have significant disputes with the
United States and as you point out that
US dollars probably aren’t the thing to
hold anymore yeah that’s true but I I I
think also it often represents uh a
choice by investors and Savers in
Emerging Markets to try and reduce their
dependency on their own domestic
currency so if you’re sitting in China
at the moment uh the property Market
which is probably where you’ve made most
of your Investments has been doing
pretty poorly now for the last couple of
years the equity Market isn’t great
there’s concerns that the Chinese
currency will weaken further gold is a
great alternative to holding R&B
denominated assets and I think that’s
benefiting there certainly that was the
case in turkey that we saw last year um
ahead of the profound depreciation we
saw uh in the Turkish L people in Turkey
wanted to own hard assets because they
expected uh the currency to fall after
the presidential election which indeed
it did gold benefited a lot so I don’t
think it’s it’s always about the US
dollar it can often be about concerns
about domestic currencies particularly
within Emerging
Markets so just tell me is there any
correlation that I should read into
record prices for gold prices and a
similar significant climb for for
cryptocurrencies and in particular
Bitcoin I don’t know I think they’re
very different assets Bitcoin has
benefited from the uh the enthusiasm
towards the space following the listing
of cash ETFs in the United States
earlier this year uh and we saw a very
rapid increase in in the price of
Bitcoin uh after those uh those
instruments were launched it seems to
have stabilized a bit now at around
665,000 a Bitcoin uh and a lot of the
excitement that uh that was there around
the beginning of the uh uh of the launch
of these ETFs has gone
away I also think about crypto assets as
immature in many respects you know we’ve
only really had about 20 years of crypto
assets so people are still working out
what to do with them how to invest in
them getting comfortable with them gold
is a mature asset and it’s fulfilled a
role for thousands of years and within
the monetary system certainly um uh for
hundreds of years people understand what
what gold does and how to play it and I
think it’s reacting to its traditional
role as that of something which you want
to hold during uncertain times now those
uncertainties can be driven by lots of
factors whether it’s economics whether
it’s geopolitics uh whether whether it’s
even a Pand iic as we saw back in 2020
so the fact that gold and Bitcoin are
going up at the same time or have been
going up at the same time this year I
don’t read too much into it a very
different asset

The price of the precious metal gold has accelerated since March 1, gaining roughly 15 per cent in value.

Investors have flocked to the safe haven as geopolitical risks intensify around the world and central banks purchase more bullion.

The World Gold Council’s Chief Market Strategist John Reade says the most recent driver since March 1, has been speculative buying on the COMEX futures market in the United States.

“Supported I guess by a bit of safe haven demand associated with Iran’s attack on Israel – but that speculative buying on COMEX wouldn’t have been able to happen if it hadn’t had for two other major factors,” Mr Reade told Sky News Australia.

“Central Bank purchases which have been really strong since the middle of 2022, and then over the last few months, really strong retail demand for gold in China.”