Monthly gold update - October 2023

Gold: Spotlight on October’s performance
The gold price added 7.3% in October as the month was rounded out by a flight to safety after the metal’s technically vulnerable start. Gold’s performance was all the more impressive given the yield on the US 10yr broke above 5% during the month, and the dollar was trading higher.
Source: Bloomberg, as at 31 October 2023. Past performance does not predict future returns.
Gold ended October at $1,984, it’s highest finish to a month since April of this year, though during the month the metal traded above $2,000 for the first time since May. This was a marked reversal from the sentiment at the end of September when an oversold signal was triggered due to the sharp selloff in gold.
Initially, the Hamas attack on Israel caused gold to rise due to concerns of higher oil prices putting downward pressure on real yields. The gap-up saw some further selling by gold ETFs, as well as an increase in short contracts, which soon came under pressure as geopolitical tensions emerged as the prime driver of gold positioning. Gold cemented itself as the most attractive “safe haven” in September; hitting new near-term highs in CHF, and US inflation was higher than anticipated. Central bank purchases rebounded in Q3 with Poland announcing its intention to add to its gold reserves again over the coming months. Gold is also supported by upcoming Diwali celebrations.
Year-to-date gold is ahead 8.8%.
Keep an eye on … an escalation in the Middle East.
Source: Bloomberg, as at 31 October 2023. Past performance does not predict future returns.
The political backdrop meant that despite real yields moving higher (to end the month at 2.5%) gold decoupled from its traditional relationship with real yields and moved higher too. Gold last traded at these prices back in Q2 when it was benefiting from growing speculation that the US economy was set to cool. At that point, real rates were closer to 1.4%. On the whole, US economic data has been much stronger than expected which is keeping real yields relatively high. Tensions in the Middle East come with anticipation of higher oil prices feeding into inflation expectations, pushing nominal yields higher too and further crystalising gold’s position as the better “safe haven” asset.
The path for the Fed Funds rates, as priced by markets, is little changed month-on-month. As well as the inflation print being slightly ahead of forecasts (3.7% vs 3.6% yoy), US payrolls also posted a massive upside surprise (336k vs 180k). ETF investors have been sellers on the macro but clearly their position has been dwarfed by those investors seeking a “safe haven”.
Keep an eye on … stagflation fears in the US.
Source: Bloomberg, as at 31 October 2023. Past performance does not predict future returns.
Gold also broke its traditional relationship with dollar strength, as both traded higher on the month with the USD adding 0.5%. Disappointment from the Bank of Japan at month end was one reason why the dollar saw gains in October, but the dollar is more generally supported by the Fed currently being at the more hawkish end of the scale of central banks. A mispricing of the interest rate differential is an obvious risk to dollar strength, more likely in the dollar’s favour.
Dollar weakness could be put in motion with lower Treasury yields. The quick increase in yield has put some investors on edge which has directly benefitted gold, but a less attractive yield outlook would put gold at a relative advantage.
Keep an eye on …weaker trending US economic data.
Investment risks
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