Is Gold Rebounding After Slumping For Months?

“Gold is starting the year with gains. Gold purchases by everyone from central banks to institutions and ordinary investors have lifted the precious metal in 12 of the past 17 sessions, according to Dow Jones Market Data.

The most-actively traded gold futures contract has climbed nearly 20% from its September low to about $1,930 an ounce—its highest level since April 2022. Prices are poised to gain for the sixth consecutive week, which would mark the longest weekly winning streak since the nine-week run that carried gold to a record of $2,069.40 in August 2020.

The advance comes after rising interest rates dragged gold to a lukewarm 2022. Gold avoided the steeper, double-digit losses suffered by stocks and bonds, but still disappointed those who had expected it to thrive during a time of elevated inflation. Now, signs of cooling price increases and weakening growth are lifting investors’ hopes of a respite from the Federal Reserve’s aggressive rate increases.

The yield on the 10-year U.S. Treasury inflation-protected security, a gauge of the risk-free return investors can get from bonds after adjusting for expected inflation, shot upward last year from a trough of around minus 1% in March to as high as positive 1.75% in October. Rising real yields tend to drag on the price of gold by diverting cash into alternative safe investments. That pressure, however, has abated in recent months, with the 10-year TIPS yield recently back down to 1.2%.

The WSJ Dollar Index has also retreated from its high of last year, falling about 10% since its 52-week high of late September and decreasing the cost of gold for overseas investors.

“If you’re patient enough, gold will start to do well,” said Jimmy Chang, chief investment officer of Rockefeller Global Family Office.
SPDR Gold Shares, the world’s largest physically backed gold exchange-traded fund, has climbed 5.7% over the last year, outpacing the S&P 500 index’s 6.7% decline. Shares of gold producers have rallied, with Barrick Gold Corp. adding almost 10% and Royal Gold Inc. jumping nearly 30%.
Joe Zappia, co-chief investment officer at LVW Advisors in New York, said he expects “pretty substantial inflows from institutions and investors into gold.”

Hedge funds and other speculative investors have pushed net bullish bets on gold to the highest levels since April 2022, according to Commodity Futures Trading Commission data tracking futures and options during the week ended Jan. 17. That is a sharp divergence from their bearish positioning during fall of last year.

Other precious metals are also enjoying a resurgence. Silver and platinum, both of which are used as precious and industrial metals, have added 23% and about 6.5% over the past three months, respectively.

Open interest value in futures contracts for the precious metals—a measure of market participation—earlier this month hit its highest weekly level since May 2022, according to J.P. Morgan Commodities Research.

Despite the murky economic picture, some expect China’s reopening could also boost prices, investors said, while worries about a U.S. recession could increase the appeal of stable investments such as gold. Many also expect slowing growth to spur rate cuts as soon as later this year, which would ease pressure on the metal.

Jim Steel, chief precious-metals analyst at HSBC Bank, said those investors could be disappointed if the Fed merely pauses its increases and keeps rates steady.

“That would withdraw a plank of support from the gold market,” Mr. Steel said.”