Insight

Monthly gold update - November 2023

Monthly gold update

Gold: Spotlight on November’s performance

The gold price added 2.6% in November following drops in its fundamental drivers of US real yields and USD strength as investors began to price in Fed rate cuts. This combined with continued uncertainty in the Middle East are pushing the metal towards its record high.

Gold price during the month

Source: Bloomberg, as at 1 December 2023. Past performance does not predict future returns.

Gold ended November at $2,036, a record high for a month-end closing price and $53 shy of gold’s all-time high of $2,071 in August 2020. That the metal decidedly broke the $2,000 level as investors were encouraged by spot prices pushing through October’s intra-day high, the metal ended the month a hair’s breadth away from completing a golden cross – the 50-day moving average was $1,944 at month end as the 200-day measure was $1,945.

We are now in a typically strong season for gold as gifting lifts physical demand (jewellery is the largest demand source for the physical metal) but Q3 was also a surprisingly strong period for central bank purchases. Over the past 18 months there has been a strong uptick in the demand for gold reserves, which has supported the gold price in the face of rising real yields and a stronger USD, overextending the metal against its fundamental drivers. This has left some segments of demand sceptical, specifically ETFs. Shortening the comparison window though, the view that the Fed is done with rate hikes and rate cuts, the dollar would be expected to be weaker and alongside continued geopolitical tensions, it’s easy to see how the gold price could rise further.

Quarter-to-date gold is 10.2% higher and +11.6% year-to-date.

Keep an eye on… gold futures; their price may breach all-time highs ahead of spot pricing.

Gold price and real bond yields

Source: Bloomberg, as at 1 December 2023. Past performance does not predict future returns

As real yields fell to 2.05%, gold hit its intra-month high of $2,044 in November before there was a reversion at month end. Real yields ended November at 2.09% having started the month at 2.52%. As real yields have fallen, this has been the key driver to gold prices this month as the established relationship of lower real yields, higher gold price reasserts itself.

Although US economic growth was strong in Q3, Q4 data is pointing towards a slowing of growth, which makes the Fed more comfortable. Inflation is moderating but still too high with housing a specific concern. Equally there has been progress in the labour market but it remains tight. The Fed is pointing to a longer period of restrictive policy whereas markets are increasingly of the view there will be rate cuts in the coming months. Should the market view come out on top, this would be a support to non-yielding gold. Note we were in a similar position last year.

Keep an eye on… variation between the December dot plot and Fed fund futures.

Gold price and the US Dollar

Source: Bloomberg, as at 1 December 2023. Generic Inflation Index US 10-year government bond or real yield on generic 10-year TIPS (TIPS = Treasury Inflation Protected Security). 

Market pricing of anticipated Fed actions saw USD 3.0% lower on the month as markets now expect the first US rate cut in March 2024, whereas at the start of the month it wasn't expected until June. Pricing is such that the Fed is anticipated to cut rates ahead of the ECB and Bank of England, and this change in interest differentials is behind USD weakness in the month. Reviewing the comparative economic data, it may be that the weakness in USD is overdone in the very near term, but the longer view remains rate cuts should bring dollar weakness and therefore support the gold price. We will see rate cuts in the coming months but to what degree, and how this continues to be messaged as higher-for-longer will be reflected in currency strength.

Keep an eye on… changes in policymakers’ language on higher for longer.

Investment risks

  • The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

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