Gold prices swing as markets sell off
Like most asset classes, gold is being affected by the unprecedented economic and financial market conditions in play around the globe. We believe that recent volatility in the gold price has been driven by massive liquidations across all assets, and likely magnified by leveraged positions and rule-based trading.
Gold has also likely been used to raise cash to cover losses in other asset classes because:
• it remains one of the best performing asset classes year-to-date, despite recent fluctuations (Chart 1)
• it is a high quality and highly liquid asset, trading over $260 billion per day in March1
*As of 18 March 2020. Computations based on total return indices in US dollars for ICE 3-month Treasury, Bloomberg Barclays (BB) US Treasury Aggregate, BB Global Bond Aggregate ex US, BB US Corporate Aggregate, BB US High Yield Aggregate, NASAQ, S&P 500, MSCI EAFE and EM indices, Bloomberg Commodity Index, Bloomberg WTI Oil Index, and spot for LBMA Gold Price PM.
Source: Bloomberg, ICE Benchmark Administration, World Gold Council.
Thus far, selling appears more concentrated on derivatives in exchanges and over-the-counter (OTC). While gold-backed ETFs have experienced outflows in recent days, flows remain positive for the year. Funds across regions have seen US$3.6 billion of net inflows in March for a collective total of US$11.5 billion y-t-d.2
Looking ahead, we believe the deceleration in economic growth will impact gold consumer demand and gold’s volatility may remain high, but high risk levels combined with widespread negative real rates and quantitative easing will be supportive of gold investment demand as a safe haven.
1 As of 18 March 2020. See trading volumes on Goldhub.com.
2 As of 18 March 2020. See ETF flows on Goldhub.com.
World Gold Council