Source: Zhitong Finance
Macro fund managers said that the continuous rise in gold prices to record highs is not over, and the factors that have driven the gold price to soar by nearly 20% since mid-February are expected to drive the price of gold to rise further.
Expectations that the Federal Reserve will cut interest rates this year have boosted the price of gold because a more relaxed environment reduces the opportunity cost of holding gold. Meanwhile, the crisis in the Middle East and Ukraine has supported demand for safe-haven assets, and purchases by central banks around the world have also supported the price of gold.
Rajeev De Mello, global macro portfolio manager at GAMA Asset Management SA, said that the current trend is a sign of increasing gold holdings. He said that there may be a slight correction in the current price of gold, but any pullback may bring in more buyers.
De Mello compared the size of the gold market to the US government bond market and said that the gold market is “a relatively small market that can rise very fast.” “It really is a very momentum driven asset.”
The continued sharp rise in the price of gold made some observers uneasy, as this happened when actual yields were still high. This is generally bad for precious metals because they don't pay interest.
But investors weren't deterred. In the New York Mercantile Exchange gold futures market, fund managers are increasing their bullish bets on gold, and net long positions for the week ending April 2 have risen to a four-year high.
One key factor is the desire for gold by major central banks, encouraging buyers like Matthew Schwab, head of investor solutions at Quantix Commodities. Schwab manages $933 million in assets. The company's long funds have been increasing their gold holdings since 2022. The weight of gold is about 30%, while the weight of the Bloomberg Commodity Index is about 15%.
In 2022 and 2023, the total amount of gold purchased by major central banks was over 1,000 tons.
Duncan MacInnes, investment director at Ruffer Investment Co. said, “I think what is really optimistic about gold is that it will disappear from the market and never come back. This is clearly different from an exchange-traded fund (ETF) because ultimately everyone is an ETF trader.” Last month, he increased his exposure to gold and silver in his two portfolios to around 8%, and the assets under management of the two portfolios totaled around $3 billion.
There is also a deeper factor that could boost gold once again. In the current environment, investors' demand for gold ETFs has yet to be seen, which is unusual. ETFs are often the key drivers of gold prices. In fact, according to data compiled by Bloomberg, total holdings are close to their lowest level since 2019.
Ben Ross, who manages the commodity strategy of around US$410 million at Cohen & Steers, said this can largely be explained by investors chasing returns in the money market. However, once the Federal Reserve actually implements its interest rate cut plan, it will eventually trigger new capital inflows into gold ETFs and further push up the price of gold.
Of course, not everyone is optimistic about the continued rise in gold. Jay Hatfield, CEO of Infrastructure Capital Advisors, has no plans to increase his gold holdings in the next 12 months. As major central banks begin to cut interest rates, he will choose to increase his stock holdings. He said that some small-cap stocks are at “historical lows of relative multiples” and will perform much better than gold.
In the short term, a sudden boom in the market may trigger an adjustment. The rapid rise in gold prices has pushed the relative strength index on the 14th to a level indicating that the price of gold has risen too much and too fast.
“People have quite high expectations for current prices,” said Darwei Kung, head of commodities and portfolio manager at DWS Group. Kung remains optimistic about the second half of the year and expects more participants to increase the gold allocation.