Gold News

Buy Gold? 'Call Me Some Other Time' Say Investors as Lottery Tickets Surge

PRICES to buy gold in London's wholesale market slipped within 1% of a 7-month low on Wednesday, dropping to $1778 per ounce as key consumer China stayed shut for the last day of the Lunar New Year holidays and global stock markets ticked back from yesterday's fresh all-time record.
 
Major government bonds retreated once more, driving longer-term interest rates higher.
 
European crude oil rose above $64 per barrel, extending its 2021 gains to 25% as vicious winter storms on the other side of the Atlantic shut oil production in Texas.
 
So-called crypto-currency Bitcoin meantime made headlines worldwide by breaking above $50,000.
 
"The only game in town seems to be equities," says the precious-metals team at French bank and London bullion market maker BNP Paribas, "[plus] some lottery tickets on alternative assets – cryptos, arts, commodities, real-estate..."
 
One contact asked "Why would I lock out of a 25% gain elsewhere to protect 5% of my portfolio right now?" BNP's team say.
 
"Call me back later."
 
"Gold's recent price weakness reflects notably weaker investment demand," agrees the latest weekly analysis from fundamental specialists Metals Focus. 
 
"A faster than expected recovery in bond yields has been the principle driver... [because it] has lifted the opportunity cost of holding gold."
 
Chart of Dollar gold price vs. 10-year US bond yields and inflation breakevens. Source: BullionVault
 
The continued sell-off in government bonds today drove 10-year US Treasury yields – the rate of interest offered to new buyers of Washington's benchmark debt – up to 1.30%, the highest since 27 February 2020.
 
Ten-year inflation-linked bonds then forecast then that the US cost of living would rise by 1.53% per annum, compared to 2.26% today.
 
Prices to buy gold were then trading at $1650 per ounce, some $125 beneath Wednesday morning's low.
 
With bond yields rising sharply on Tuesday, both the giant GLD gold-backed ETF and the smaller iShares' IAU product saw yet more investor outflows yesterday, shrinking those trust funds to the smallest sizes since mid-June and end-December respectively.
 
Silver's giant SLV trust fund in contrast grew very slightly, expanding by 0.01% after seeing 8 days of outflows, as the more industrial precious metal's price fell 1.8%.
 
Silver prices today rallied again back to $27 per ounce, little changed for 2021 to date at the level from which it sprang to an 8-year high of $30 amid the Reddit Ramp of 3 weeks ago.
 
"Ample liquidity and expectations about a major rebound in the world economy have boosted investor appetite for riskier assets," Metals Focus' latest note goes on, "[with] broader commodity prices expected to benefit from a vaccine-driven recovery."
 
But Metals Focus "still believes that the investment case should overall remain favourable for gold [because] inflationary expectations were a key driver of the post-2008 gold rally [and] many investors feel that, this time around, the extent of monetary and fiscal accommodation and their more targeted nature have a greater likelihood of driving prices higher."
 
Most importantly, the threat of high unemployment "means that central banks will be constrained from raising rates at a time when inflationary pressures start to creep higher...[as] doubts about the solidity of this recovery are likely to persist.
 
"This, coupled with other tail risks [from over-priced stock markets to excessive debt], should all help maintain investor inflows into gold."
 
The Dollar today rallied from near 3-year lows against the British Pound, but that failed to help the gold price in Sterling terms stem its plunge to the lowest since April last year at £1280 per ounce.
 
Euro prices to buy gold meantime re-tested last June and December's lows at €1473.

Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn

 

 

scri

Market Fundamentals