Julius Baer points to speculative movements as an explanation
MADRID, 21 Mar. (EUROPA PRESS) –
The troy ounce of gold, a safe haven asset par excellence, pierced its all-time highs this Thursday by exceeding $2,200 after learning the day before of the decision of the United States Federal Reserve (Fed) to maintain interest rates within the range of the 5.25-5.5% and announce three drops this year.
According to market data consulted by Europa Press, the ounce of gold has been trading above $2,200 for most of the day with increases of more than 1%, however, in the afternoon the increases moderated and it returned to yesterday’s closing levels, around $2,185.
So far this year, gold has accumulated a revaluation of almost 6%, although the advances have been especially concentrated this month – only in the three weeks ending in March it rises more than 6% – to the sound of the statements and movements by central banks regarding when and with what intensity interest rates will arrive.
In that sense, gold broke its historical highs for several days at the beginning of this month as it approached the level of $2,200, a milestone that it finally achieved today.
The movement of the ounce of gold has surprised the market after the carousel of central bank meetings – the vast majority have left rates unchanged – especially in line with the Fed’s turn.
This is because gold is quoted in dollars, so if the ‘price of money’ (interest rates) remains high, the price of the metal should devalue and vice versa, according to classical theory.
Under the same line of argument, Julius Baer’s investment director, Yves Bonzon, has focused on the difficulty in explaining the current strength of gold since none of the traditional drivers of gold prices – the US dollar, yields realism of US bonds and investor risk aversion – is currently in place.
For this reason, he has pointed out that the real demand for investment in gold, reflected in the holdings of physically backed investment products, has not kept pace with the rise in prices, which suggests that “the speculative position in the futures market is driving prices up, thus questioning the durability of the current episode.”
Likewise, he has indicated that the gold metal would be “imitating” the recent evolution of bitcoin prices, which they consider their “digital substitute.”
Prior to this streak, we would have to go back to December 4, when it touched $2,135, to find the highs for an ounce of gold.
At the beginning of the month, the same entity pointed out that, except for a recession in the United States and a shift in US monetary policy in the form of rate cuts, “gold prices are on an unstable base and there are more disadvantages than advantages medium and long term; that said, short-term price risks are skewed to the upside.”
For his part, Jupiter AM investment manager, gold and silver, Ned Naylor-Leyland, explained in early March that one of the main reasons for gold’s resilience would be found in the accumulation of gold by states.
In that sense, it estimated that global central banks purchased 1,037 tons during 2023, the second highest annual total on record. He also noted that bullion flows have also been particularly strong in the East in light of recent withdrawals from the Shanghai Gold Exchange (a way of measuring total demand in China), which has reached the highest level since July 2015.
However, he noted that despite strong demand from Asia, Western investors “remain largely on the sidelines, as evidenced by the decline in gold ETFs.”
The price of gold resurfaced strongly due to the return to the foreground of the Palestinian-Israeli conflict, while since last October 7 – the day of the attack by the Islamist Hamas militia on Israeli territory – the metal has accumulated a revaluation of more than 15 %.
In this way, driven by geopolitical risks and massive purchasing by central banks, gold reached a new level in early December for its historical records above $2,100.
Prior to that bullish streak last fall, the last time gold traded above $2,000 was in May 2023 due to the tension in the Ukrainian conflict and the shocks derived from the US regional banking crisis, as well as the Credit Suisse bankruptcy last March, so that its value reached a value of $2,063 at the beginning of May.
However, the previous all-time high for gold – prior to last December 2023 – occurred on March 7, 2022, when the ounce touched $2,075, beginning two weeks before the Russian invasion of Ukraine. At the same time, it was also around those levels in August 2020 after the outbreak of the pandemic.
