The gold market's status in July 2023 reveals significant trends and movements, which reflect broader economic and policy dynamics. Let’s explore some of the dynamics of the gold market by discussing gold-backed exchange-traded products (ETFs), regional breakdowns, central bank policies, and price action from the past month and how it will influence how people buy gold in Canada.
In July 2023, the global ETF market faced a decrease, marking the fourth consecutive month of liquidation in the gold market. According to a recent report by the World Gold Council (WGC), the global ETF market's holding dropped by 34 tonnes, equivalent to a $2.3 billion value.
"Overall, global gold y-t-d flows were -US$4.9bn at end of July, a cumulative reduction of 84t in holdings," said WGC's analysts. Despite these reductions, the resilient prices allowed overall assets under management to increase by 2%, amounting to $215 billion.
An analysis of the regional breakdown revealed that European-listed funds were slightly weaker compared to their North American counterparts.
Europe experienced an outflow of 18.5 tonnes of gold, valued at $1.31 million.
Meanwhile, North American listed products saw a decline in holdings by 16.3 tonnes or nearly $986 million.
Contrary to the global trend, Asian-based funds experienced regional inflows of 2 tonnes, valued at $132 million.
Central bank actions, specifically those from the Federal Reserve and European Central Banks, continue to influence investment demand in the gold market.
"The US Fed increased rates by 25bps in July, but with recent inflation data softening, investors expect the Fed's current tightening cycle to end soon," said the analysts. They added that this expectation supported gold prices, even though it led to risk-on sentiment in equities, diverting investment away from gold.
To control persistent inflation pressure, both the European Central Bank and the Bank of England raised their policy rates to multi-decade highs. Interest in gold ETFs remained lukewarm, but FX-hedged products in Europe saw inflows amid local currency changes.
Despite discouraging investor interest, gold prices managed to increase by 3.1% by the end of July. WGC noted that this rise was connected to growth in breakeven rates, suggesting that inflation continues to be a concern.
China purchased 23 tonnes of gold in July, with analysts stating that the People's Bank of China (PBOC) is likely just getting started. Ongoing market uncertainty and the rift between equity and bond market narratives are expected to continue supporting gold prices, even though the price action might remain unclear through August.
Historically, August has been favourable for gold. However, WGC analysts warn that 2023 could differ. They have noted that "August may not be as gold-friendly as it has been in the past, but there are good reasons as to why support for gold will establish itself later in the year." The analysts also foresee more upside than downside for gold, given the current economic risks and elevated sentiment and valuation in stocks.
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