Welcome to a very brief overview of the recent performance in the markets. The essentials are captured in the table below and each week we will show a chart of interest.
Gold sustained a $60 swing in the space of just 48 minutes on Thursday as Federal Reserve (U.S. central bank) Chairman Jay Powell was addressing the Jackson Hole symposium, bursting higher to between $1,974 and $1,975 then dropping just as fast to $1,914. (Jackson Hole is an annual central bankers’ symposium and often the medium for central bank policy guidance). The LBMA auction took place while all this was going on, with a total of 33 rounds. This would therefore have taken just over 16 minutes; the longest fix in recent history was that of Black Monday, 19th October 1987 when it took well over three hours and ranged over more than $50 as the equity markets were in a tailspin. At that stage gold, during the fixing process, rose to test $500 as the U.S. equity markets were shedding over 20% in just one day. The pattern was the same then as we saw in the February-March falls this year; gold’s rally was short-lived as it was liquidated to raise cash in distress and against margin calls, but for the longer term investment demand was stimulated, even though prices drifted lower in the face of high and rising interest rates.
ETF regional gold absorption, 2020 to date
Source: World Gold Council, StoneX
That investment in gold followed an equity market crash. This time investment is being generated, among other things, by concerns over a potential further equity market crash (as well as the drop in February-March, when the S&P shed 34% – but over 25 days, not one) that would not recover the way it has this year. There is little doubt that with the exception largely of high tech and the gold miners, the majority of individual stocks are trading on fanciful multiples given the economic and earnings outlook, not to mention the increased cost of funding following downgrades by major ratings agencies.
In parallel with this there is, partly due to the massive liquidity injections from the Fed, still a lot of cash looking for a home outside the equity markets and this is fuelling the move into gold. The ETFs are the most transparent way of monitoring this and in the year to date 930t have been absorbed into global ETFs for a net inflow of $50.8Bn. The most recent regional breakdown comes from the World Gold Council; by far the largest inflows have been in North America at 614t (to 21st August), although when looked at on a proportional basis, the flows are more evenly spread, with North America increasing the assets under management by 27.0%, Asia by 26% and “other” (Australia, South Africa, Turkey, UAE and Saudi Arabia) by 27.3%, bolstered by the start in July of the first fund in Saudi. Europe has been more modest at 13.6%. Total gold holdings at present; 3,817t, equivalent to 58 weeks’ mine production, or 1.7 times the average global gold jewellery consumption over the past ten years.
Investors on the futures exchanges have been reducing their gold exposure again, however; over the three weeks to last Tuesday 25th August the outright longs held by money managers decreased by 62t while outright shorts have rising by 20t, leaving the net long at 270t, the lowest since 4th June 2019. On the other side of the coin, money managers have been increasing their exposure to silver, with the outright longs up by 1680t (20%) over the past fortnight and the shorts down by 13% to taken the net long position to 6,246,t a five-week high.