After a strong first quarter start, investment demand for gold-backed exchange-traded funds began to cool last month as investors began to position themselves for the Federal Reserve’s aggressive monetary policy tightening, according to the latest data provided by the World Gold Council (WGC). However, according to WGC senior analyst Adam Perlaky, there is still hope for the gold price to rise even as interest rates rise.
“Gold responds to more hawkish central bank rhetoric”
In a report released Friday, WGC said 43 tonnes of gold poured into the paper ETF market in April. The inflows brought total global assets to 3,869 tons, worth $238 billion. Total holdings are just 1% below the all-time high of 3,922 tons in November 2020. Analysts comment:
While this was 77% lower than the previous month, which was the strongest since February 2016, it was the fourth month of entry in a row, maintaining the quality-escape momentum we witnessed this year. The price of gold has faced pressure throughout the month, responding to increasingly hawkish central bank rhetoric, as yields rose sharply and the US dollar strengthened significantly.
Despite the healthy investment demand, the gold price closed the last month with a 2% decrease
Looking at the regional gold markets, last month was the highest for the precious metal. Europe saw the strong investment demand. European-listed funds saw inflows of 26 tonnes last month, raising regional assets to a new record high of 1,692 tonnes. Regional inflows were again concentrated in the UK, Germany and France, all with record holdings during the month. Analysts say:
Swiss listed funds supported the trend with small net outflows. European investors continue to buy gold amid record-breaking inflation fueled by energy supply concerns, slower economic growth and geopolitical unrest.
North America listed funds saw 18 tonnes of entries in April. According to analysts, interest rate expectations rose during the month, while investors’ concerns about slowing economic growth and high inflation did not ease, which increased demand for hedges such as gold and commodities.
While investment demand for gold has been healthy since the beginning of the year, some analysts say the Federal Reserve’s monetary policy is starting to affect sentiment. According to reports, gold ETFs made their debut last week, ending 14 consecutive weeks of gains.
“Even if interest rates go up, gold still has a higher path”
Kriptokoin.com As you follow, last week the Federal Reserve increased interest rates by 50 basis points, the biggest increase in 22 years. Federal Reserve Chairman Jerome Powell retracted market expectations for a 75 basis point move. However, the central bank has signaled two more 50 basis points of action potential.
WGC senior analyst Adam Perlaky says gold prices are still on a higher path even as interest rates rise. The analyst comments:
Despite rising yields and higher interest rate expectations, inflows throughout April indicate that investors are still worried about higher inflation and slower economic growth. Given the risk of a stagflation environment, demand for liquid hedges such as gold continued to increase, particularly among European and North American funds.
“Negative correlation between strong dollar and gold price continues”
Adam Perlaky, gold investors’ highest in almost 20 years He adds that he should be careful with the US dollar, which is trading close to the level, and states that the dollar may have the biggest impact on the precious metal. According to the analyst, the negative correlation between a historically strong dollar and gold price remains, indicating that the asset may face headwinds in the future. Adam Perlaky explains his views as follows:
However, it is important to consider that gold’s response may be influenced by the driving forces behind the strengthening dollar rather than the dollar’s direction alone. If the dollar remains strong due to hawkish central banks and rising yields, the gold price will likely be adversely affected. But if the rise is driven by risk aversion and geopolitical tensions persist, gold could rise.
