By late April 2025, the gold price in USD was up by more than $850oz on a calendar year to date basis, which represented a return of more than 30% Said in a ABC Bullion Report. Given gold’s long-term returns are closer to 9% per annum, early 2025 saw roughly 36 months of normal returns condensed into a period of less than four months.
With such extreme positive momentum, it was no surprise that long gold became the most crowded trade in the market. This has since dissipated, as evidenced in the chart below, which shows the most crowded trades in the market, and how these have evolved in the last three months.
Moving on from fund manager positioning, we have also seen positive news in terms of intended asset allocation decisions as it relates to precious metals amongst private investors. HSBC’s Affluent Investor Snapshot showing that gold allocations have doubled in the past year, and that 41% of investors plan on adding gold to their portfolio in the next year.
We also continue to see positive news out of China. While jewellery demand has understandably softened given the price surge, we have seen record flows into financial products, a surge in trading volumes on the Shanghai Futures Exchange (SFE), while the People’s Bank of China (PBOC) have added to their official gold holdings for the last eight months in a row, with total reserve holdings now sitting just below 2,300 tonnes, or almost 7% of total foreign reserves.
Lastly, while it is fair to say that gold for now remains in consolidation mode, and is awaiting a catalyst (as are many markets), we believe precious metal bulls can also take encouragement from what we have seen in the gold ETF market in recent times.
For most of the period from late 2020 to early 2024, gold ETFs saw net redemptions (i.e. investors were selling more than they were buying), with approximately 900 tonnes, or some 25% of total holdings, shed across this period. For the past year, the gold ETF market has returned to net inflows, with some 500 tonnes coming back into these products.
As per the chart below, sourced from the World Gold Council’s mid-year outlook, there is still room for the market to add substantial tonnage to gold ETFs, with the rolling 12-month pace of inflows currently running at less than half the speed it was back in 2020 for example.
Should anything like that speed of inflows be repeated between now and the end of the year, we can expect a positive few months ahead for the precious metal market.
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