Why is the gold price suddenly rising right now? Market hunts for answers behind bullion's surge
Mon April 08 2024
Gold's scorching run to an all-time high may seem easy to explain from a distance, given the fractious geopolitical climate and murky outlook for the global economy. The precious metal is famously seen as a "safe haven," and the general view is that bullion prices should rise when interest rates fall "- which many investors expect will happen later this year.
And yet. Take a closer look, and it's far from clear: why is gold suddenly rising right now?
After trading in a fairly steady range for months, bullion started spiking in early March. It's risen 14% since then and left a string of daily records in its wake. But geopolitical tensions have been high for months, even years, and if anything the outlook for the timing on rate cuts by the Federal Reserve has become muddier in recent weeks. So what's changed?
Seasoned executives and analysts offer very different answers to who or what has driven gold to its unprecedented heights: Is it a central bank worried about the dollar's role as an economic weapon? Funds betting that the Federal Reserve's pivot to lower interest rates is imminent? An army of algorithmic traders drawn to gold simply because it's going up? Stubborn inflation and worries about a hard landing? Weakening currencies? Upcoming elections? All of the above?
The mystery has sent industry insiders poking through the plumbing of a massive global trade that stretches across futures and exchange-traded funds from New York to Shanghai to a huge over-the-counter hub in London and world-spanning web of dealers selling bars, coins and jewellery to everyone, everywhere.
It's an opaque and complex world that's historically been hard to crack open. Still, the market and regulators have been on a years-long drive to boost transparency, increasing access to data that helps shine a little more light on the gravity-defying rally in one of the world's oldest stores of wealth.
Who's buying?
First, the easy answer: central banks, in particular, as well as big institutions and traders preparing for a shift to looser rates. Chinese consumers are worried about wilting returns in other assets and a depreciating currency. On Reddit Inc.'s platform, self-proclaimed "stackers" boast of hoarding bars and coins.
But those groups have been a consistent bullish force for months "- or years in the case of central banks "- and it's not clear why any one of them might be buying with a much greater sense of fear, greed, or exuberance. Analysts are armed with better market data than they've ever had before, and yet the cumulative answer is frustratingly vague: It's everyone all at once, and no one in particular.
What are they buying?
One thing that's clear is also a head-scratcher: Investors haven't been buying exchange-traded funds, one of the easiest ways to acquire gold. A steady stream of outflows from gold-backed ETFs suggests that a major cohort is missing out "- or cashing out.
"This is one of the more bizarre phenomena that I've ever seen in the ETF space," said Nate Geraci, president of the ETF Store. "What's particularly interesting is that gold demand has been very strong in other channels such as central bank purchases and direct purchases by individual and private investors."
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