Market Commentary

Gold rose slightly in October, despite a risk-on environment and increases in short-term bond yields 

Higher inflation across Europe in recent months has raised questions over when the European Central Bank (ECB) may begin to tighten monetary policy.

Reflation is good for commodities and even better for gold.

The current global economic landscape indicates improving economic conditions, higher inflation and rates expectations, as well as commodity supply shortages which are likely to support commodity performance.

Inflation fears and momentum ignite gold

Gold registered healthy positive returns for the second consecutive month, erasing the losses accumulated during Q1. Gold ended May at US$1,899.95/oz – its highest level since January and back above its 200-day moving average – representing a 7.5% m-o-m increase.

The volatility of numerous assets has shifted along with the performance of gold, which has recently rebounded to nearly flat on the year. 

Inflation, falling yields and the US dollar pushed gold higher

Marking a turnaround from the first three months of the year, gold rebounded 4.5% in April to finish the month at US$1,768/oz - its highest monthly closing level since January and its first positive monthly return since December 2020.

After a strong 2020 performance where the price rallied 25% in US dollar terms in an environment where rates fell, gold has been much weaker during 2021, down 5% year-to-date with rising rates.

Inflation has emerged as a primary concern for investors. On balance, arguments for ‘uncomfortably high’ US inflation seem to outnumber those against, at least in the near term.

A sharp rise in US interest rates and a stronger dollar have weighed on gold recently. But a rebound in economic activity and a lower gold price have provided opportunities for consumers and strategic investors alike.