In March, gold prices saw a remarkable rally, finishing the month 8.1 percent higher at US$2,214 per ounce and hitting an all-time high of $2,431.29 in the second week of April. Despite a flat U.S. dollar, gold’s strong return impacted major currencies, sparking curiosity among market observers about the underlying causes of this rally. Analyzing the dynamics at play, the World Gold Council reveals a complex interplay of factors shaping gold’s trajectory in its March market review.
The World Gold Council attributes the March rally to several key factors. The council’s Gold Return Attribution Model (GRAM) suggests that risk and momentum factors are the drivers behind gold’s surge. The model particularly emphasized gold’s implied volatility, which surged during March. This increase in volatility, coupled with geopolitical tensions and signs of stagflation risks, fueled investor demand for gold as a safe-haven asset.
The report also highlights the surge in COMEX-managed money futures’ net positions which recorded their 3rd strongest month since 2019 on both short covering and fresh longs. The council also noted significant flows into gold exchange-traded funds (ETFs) in all regions except Europe.
Market dynamics and ETF flows
The report notes an unprecedented disconnect between gold prices and global gold ETF flows, raising questions about the sustainability of the rally. This disconnect drove a wedge between comparisons of the current all-time high to that of 2011.
Despite gold reaching all-time highs, U.S. gold ETFs as a share of total U.S. ETFs remain considerably lower than in previous years, indicating under-allocation in gold investments. Together with the prospect of lower interest rates ahead, the report suggests that ETFs have missed the rally and are now under-allocated. However, steady central bank buying and resilient demand for gold jewelry and bullion suggest a strong foundation for the current rally.
From a macro perspective, the report noted an important crossover in U.S. data which suggests an increase in stagflation risks. This further supports gold prices.
Contrary to speculation, there is no evidence to support the narrative of capital flowing out of gold ETFs into Bitcoin ETFs. In fact, recent data shows a strong correlation between asset under management (AUM) growth in Bitcoin and U.S. gold ETF products, indicating speculative rather than structural movements in both markets.
Read: UAE gold prices remain stable as global rates surge on Middle East tensions
Impact of political events on gold
India’s upcoming general election, beginning on April 19, could have repercussions on prices. Historically, gold consumption in India tends to be impacted during election seasons due to heightened scrutiny of cash and gold transactions. While political events may influence short-term fluctuations, the overall fundamentals supporting gold remain robust.
