In the Gold Market Commentary for January 2024 review, World Gold Council (WGC) said, Inflation risks seep back in! Gold prices fell back to US$2,053/oz, to finish the month 1% lower, departing from historical seasonal strength in several currencies, the worst performing G10 currency so far this year.
A retracement following such a stellar finish to the year was probably on the cards, with global gold ETF outflows accelerating to 51t and a reduction in Comex futures net longs (-206t) the main contributors, as per Gold Return Attribution Model.
Added to this was the headwind of higher Treasury yields and the US dollar as US economic strength sharply surprised to the upside, and hopes of early monetary policy cuts were dashed.
In the January 2024 review, WGC said, Gold failed to power higher in January, despite seasonal tailwinds, after breaching record highs at the end of 2023. Global gold ETF outflows and a reduction in speculative positioning were major contributors of gold’s January performance.
Long-term Treasuries and the US dollar, on the back of strong upside US economic surprises, were also headwinds.
In the conclusion, WGC said, over the next month, there could be a back-up in yields as inflation growth and employment data keeps coming in hot, which, all else equal, could be a headwind for gold. However, higher bond yields would likely also pressure equities, which once again look particularly frothy and could result in stock market volatility.
Added to this, a steady stream of elections are coming thick and fast, bringing with them lots of known unknowns about geopolitical stability. There are more to follow in March as well, and of course there are the US primaries. The general level of uncertainty is poised to keep some investors with one hand on their gold.
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