Recently, the World Gold Council, published their Gold Market Commentary, When the wells run dry for the month of March 2025. The report said, another month, another set of new highs. Gold finished March at US$3,115/oz, a gain of 9.9% m/m.1 Even a materially weaker US dollar, primarily via euro strength, couldn’t prevent a stellar performance and new highs across all other major currencies.
According to our Gold Return Attribution Model (GRAM), euro strength and thus US dollar weakness was once again a key driver of gold’s performance, alongside an increase in geopolitical risk capturing tariff fears (Chart 1). Gold ETF buying continued apace in March with all regions contributing. US funds led the charge with US$6bn (67t) of net inflows followed by Europe then Asia with approximately US$1bn each. While ETF flows were positive, COMEX futures declined marginally by US$400mn (5t) likely on profit taking.
When the wells run dry;
1: Liquidity matters, and has arguably been bolstering both financial assets and the economy in the US for much of the post-COVID period,
2: In 2022, however, US financial conditions tightened forcefully as liquidity was removed from markets. This perfect storm caused a very rare annual joint decline in bonds and equities. Gold held up but also experienced some bumps along the way.
3: We are now at a similar impasse in liquidity conditions, but with crucial differences that bode well fundamentally for gold & 4: The one hurdle is the hitherto strong run-up in gold prices. Comparisons to the 2011 and 2020 peaks are likely to be made, but in our view, the environment remains supportive of further gains.
US…aid! While by no means the sole contributors to their solid performance, the US economy and financial markets benefited from monetary and fiscal support since the COVID pandemic. Fiscal spending programmes arguably bolstered job creation via government and government-adjacent jobs.
Capital markets were also aided by fiscal liquidity provisions combined with a continuation of the ‘monetary backstop’ from the Fed. This helped compress the Treasury bond risk premium to well below its pre-COVID average and equity multiples to well above their pre-COVID averages.
These sources of liquidity ebbed in 2022, coinciding with a rare joint decline in bond and equity markets (a 60/40 blend of S&P 500 and US treasuries dropped as well as economic activity). Gold also succumbed, falling 20% over two quarters in 2022, before a recovery to end the year flat. Proving direct causality is difficult, yet it does suggest markets and the economy had grown accustomed to artificial support.
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