- Gold reached US$3,429/oz in August, up 4% for the month and 31% year-to-date, driven by a weaker US dollar, geopolitical tensions, and $5.5 billion in global ETF inflows
- US and European investors are taking a leading role as emerging market demand softens, with gold’s sensitivity to US real interest rates likely to increase
- ETF investors show the strongest response to stagflation risks, while futures traders focus on rate trajectories, as the yield curve steepens amid persistent inflation fears
Harare- Gold experienced a robust rally at the end of August, reaching US$3,429 per ounce, a 4% increase for the month, bringing its year-to-date gain to an impressive 31%.
Despite a weaker US dollar, gold appreciated in all major currencies, and this positive momentum has continued into early September. Where it reached a new record high.
According to the Gold Return Attribution Model (GRAM), key factors driving August’s price performance included an early-month decline in the US dollar, persistent geopolitical tensions, and strong global gold ETF inflows.
More recently, the growing likelihood of a September rate cut has further supported gold’s upward trajectory.
Gold ETFs saw significant inflows of US$5.5 billion (53 tonnes), primarily from North America (US$4.1 billion) and Europe (US$1.9 billion), though Asia and other regions experienced outflows. Meanwhile, COMEX managed money net longs recorded more modest inflows of US$2 billion (16 tonnes).
Looking ahead, US real interest rates are likely to become a more significant driver of gold prices, particularly as US investors take a more prominent role in the market, following softer demand from emerging markets.
Historically, between 2007 and 2022, gold prices were closely tied to US real interest rates, which represent the opportunity cost of holding gold.
However, post-2022, this relationship weakened due to strong demand from emerging market central banks and investors. As this demand has tapered, as evidenced by Gold Demand Trends data, local premia, and intraday session returns, Western investors, particularly in the US, may regain influence over short-term gold returns.
A potential drop in interest rates across the yield curve could trigger increased gold buying in the US, but current dynamics suggest otherwise.
The yield curve is steepening, with the short end declining due to expectations of Federal Reserve rate cuts, while the long end remains elevated due to risk premia and concerns about future inflation.
The persistence of high long-end rates reflects growing unease about stagflation, characterised by rising inflation alongside slowing economic activity and weakening labour markets.
Such an environment has historically been favourable for gold.
Among US investor types, ETF investors are the most sensitive to stagflation risks, showing a statistically significant response, followed by retail bar and coin buyers, though their response is less pronounced.
On the COMEX, non-reportable investors, often associated with retail flows, also tend to respond positively to stagflationary signals.
However, “fast money” investors, such as Commodity Trading Advisors (CTAs), appear less concerned with stagflation, likely because their focus remains on interest rate trajectories and technical factors. For these investors, stagflation’s implication of potentially higher rates may dampen enthusiasm for gold until rates soften further.
As demand from emerging markets softens, gold’s sensitivity to US real interest rates is likely to increase, with Western investors, particularly in the US, playing a more dominant role.
While sticky long-end rates reflect stagflation concerns, an environment that historically supports gold—ETF investors have shown the strongest response to these risks, with increased investment activity in both the US and Europe, despite rising real rates in the latter.
Futures traders, by contrast, remain more focused on rate dynamics.
As the yield curve steepens due to lower front-end rates and persistent inflation fears, the interplay between macroeconomic signals and investor behaviour will be critical in determining gold’s next move.
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