Gold nears record high

After its record reached in mid-April – 2,431 dollars per ounce – the price of the yellow metal fell during the second half of the month. “This normal correction in view of the rapid rise in the price was favored by questions about the possible postponement of the reduction in American key rates due to a stronger economy than expected and persistent inflation», consider the experts of the Comptoir National de l’Or.

But the yellow metal has recovered well with a gain of around 2.8% since the start of May. At $2,387.86 at the close on May 15, gold recorded an increase of 15.5% compared to May last January. This is almost twice as much as the CAC 40, which also reached new historic highs.

The evolution of gold prices depends above all on real interest rates (i.e. long-term rates corrected for inflation expectations). However, these are expected to decline within 12 months.

Consumer prices (CPI) in the United States increased less quickly than expected in April, by 0.3% over one month. Over one year, they increased by 3.4%, after 3.5% in March. Excluding volatile items, the CPI index also slowed to 3.6% year-on-year, its lowest level in two years.

The American 10-year rate, which was moving at 4.42% before the publication of the figures, fell to 4.34% immediately, reflecting relief to see the level of inflation in line with expectations, and not above.

In fact, after having been widely questioned, expectations of rate cuts by the American Federal Reserve (Fed) from September are regaining ground.», comments the independent economist Véronique Riches-Flores.

Gold shares are benefiting from this trend.

Other factors work in favor of the yellow metal. Geopolitical tensions continue (Middle East, Ukraine, etc.) and the central banks of emerging countries are increasing their purchases of the yellow metal to diversify their reserves and reduce their dependence on the dollar.

The Comptoir National de l’Or thus underlines the strong Chinese demand, both in jewelry and in investment gold (coins and ingots).

According to the China Gold Association, the Chinese purchased 309 tonnes of the yellow metal in the first quarter of 2024, an increase of 6% year-on-year. Asian ETFs (funds holding gold) also increased their holdings by almost 20 tonnes in April, the highest since 2018.

The National Gold Counter also notes that “volumes traded on Asian stock exchanges have exploded, particularly on derivatives. In April, nearly $40 billion in gold contracts were traded per day on the Shanghai Stock Exchange, almost 3 times the average volume for 2023.“.

For its part, the Chinese Central Bank purchased 5 tonnes of gold in April, which represents the 18th consecutive increase in its official reserves of the yellow metal. The valuation of its assets (2,264 tonnes) reached $168 billion last month, compared to $3,200 billion in foreign exchange reserves. This means that China exceeds 5% of its gold holdings.

For individual investors, gold represents a diversification investment and a Source of decorrelation compared to other assets. We recommend that Revenu readers hold a pocket of gold representing 5 to 10% of their overall investments. There are different ways to invest in the yellow metal.

Paper gold offers the advantage of hedging a stock portfolio. These are gold trackers which replicate variations in the price of gold in London and are traded on the stock exchange like shares with reduced fees. These products are backed by stocks of physical gold held by an independent custodian. The historical gold tracker is the Gold Bullion Securities [code isin : GB00B00FHZ82]. We prefer it Amundi Physical Gold [code isin : FR0013416716]whose management costs are lower.

Physical gold is intended for those who wish to give their investments a concrete dimension, heritage and security. Coins are easy to buy and store, and more liquid than bars. The safe values ​​are the Napoleon 20 francs, the Swiss Cross 20 francs, the South African Krugerrand and the Sovereign Elisabeth II.



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