Gold prices posted their third consecutive monthly gain in May, rising by 2 per cent month-on-month to $2,348 an ounce.
While this gain was more moderate compared to March and April, the precious metal hit an all-time high of $2,427 an ounce before pulling back, the World Gold Council said in its report.
Meanwhile, physically backed gold ETFs saw their first monthly inflow since last May, amounting to $524 million. A stronger gold price and inflows pushed gold ETFs’ total assets under management (AUM) 2 percent higher to $234 billion, the highest since April 2022.
What drove gold prices
There was no variable that stood out as a key driver of prices, the World Gold Council said.
Momentum and a weaker US dollar were positive influences but their impact was marginal. Over-the-counter buying and central bank purchases, too, were notable contributors, the report said.
What will impact future gold prices?
Key US data such as growth and inflation figures will continue to set the tone for currency markets and other asset classes.
Until recently, the dollar had been performing remarkably well as US growth remained robust, and the narrative had shifted to when the US Federal Reserve would cut interest rates, rather than whether.
“The US dollar rally went into reverse in May – falling for the first time in 2024 – as inflation eased, giving the Fed more room to cut interest rates,” the report said.
But as the dollar bull run slows, it could bode well for gold.
The World Gold Council also noted that a weaker dollar would bring back Western investors, who had until now been waiting for a trigger.
Historical movement
The period following a dollar peak has historically been good for gold. Assessing eight periods in history where the dollar experienced a prolonged contraction, it was found that the average duration of these pullbacks was roughly 22 months, during which the US dollar fell 23 percent and gold rallied 52 percent, on average.
Moreover, when the dollar has fallen by at least 10 percent over a six-month period since 1971, the average return for gold during these periods has been over 14 percent.
How ETFs performed
European and Asian funds drove global inflows for ETFs. While May marks Asia’s 15th consecutive monthly inflow, Europe recorded their first positive flow since last May. Meanwhile, North American fund flows turned negative again, albeit only slightly.
Flows in North America flipped back to negative in May (minus $139 million) following two consecutive monthly inflows. But compared to the region’s outflows in prior months the negative May figure was the smallest since December 2019.
Europe experienced inflows in May ($287 million), putting a stop to its 12-month losing streak.
Asia registered its 15th consecutive monthly inflow, capturing $399 million in May. Although this marks the region’s smallest inflow since November 2023, Asia’s continued inflow streak is the second longest on record. China once again drove regional demand, capturing $253 million. Key drivers of gold ETF demand in the country were the local gold price rise, which refreshed its all-time high, and continued weakness in the local currency. Japan also saw healthy inflows amid attractive local gold price gains. Asia has attracted $2.6 billion so far in 2024; the only region that has captured inflows.
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