Gold Market Commentary - January 2023

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January successful review: Front ft commencement for gold

  • The US dollar was a important contributor to gold’s 6.1% January gain, followed by a driblet successful US Treasury yields.

  • A 2nd affirmative ‘unexplained’ facet successful our exemplary whitethorn beryllium continued central slope buying.

Looking forward: Futures blaze a way for golden ETFs to follow

  • Gold value rallies from erstwhile nett short lows successful futures positioning person been beardown and durable; nan existent rally looks similar
  • It is not simply a short covering. Long positioning has been arsenic progressive arsenic previously, suggesting a buy-in to gold’s tactical case. And short positions remain, signalling an uncrowded trade
  • While European outflows person masked nascent North American inflows, our study suggests that futures historically lead ETFs which could entice a much sustained rally.

Front ft commencement for gold

A 6.1% return in January took golden to US$1,924/oz, and nan US dollar return adjacent to nan apical of nan rate return array acknowledgment to a weaker speech complaint (Table 1).

Another period of expanding COMEX futures nett longs to 250t aliases 16% of unfastened interest, helped thrust nan price. While European golden ETFs proceed to spot outflows successful a much sanguine location economical and ostentation environment, US costs person been dipping their toes due, successful our view, to a bully tactical lawsuit for gold.

According to our Gold Return Attribution Model (GRAM) (Chart 1), from a macro perspective, a bully information of January’s capacity tin beryllium attributed to nan weaker US dollar, followed by a sizeable 37bps driblet successful nan US 10-year Treasury yield. The beardown December return for golden was a mini resistance successful January arsenic golden returns thin to acquisition immoderate mean reversion, a characteristic that reflects its debased volatility comparative to different assets.

Finally, we saw different affirmative 'unexplained' information of our model, which besides characterised parts of 2022. On reflection and fixed caller accusation arsenic per our FY Gold Demand Trends publication, we can’t norm retired that immoderate of nan unexplained return is capturing cardinal slope buying aliases expectations thereof, which - pursuing a colossal 2022 - whitethorn beryllium continuing into 2023.

Chart 1: A weaker dollar was nan ascendant contributor to gold’s affirmative return successful January

A weaker dollar was nan ascendant contributor to gold’s affirmative return successful January

Sources: Bloomberg, World Gold Council


*Data to 31 January 2023. Our Gold Return Attribution Model (GRAM) is simply a aggregate regression exemplary of monthly golden value returns, which we group into 4 cardinal thematic driver categories of gold’s performance: economical description , consequence & uncertainty, opportunity cost, and momentum. These themes seizure motives down golden demand; astir poignantly, finance demand, which is considered nan marginal driver of golden value returns successful nan short run. ‘Unexplained’ represents nan percent alteration successful nan golden value that is not explained by factors presently included successful nan model. Results shown present are based connected study covering an estimation play from February 2007 to January 2023.

Table 1: Gold has started nan twelvemonth connected nan beforehand foot

Gold value and return successful different periods crossed cardinal currencies*

USD (oz) EUR (oz) JPY (g) GBP (oz) CAD (oz) CHF (oz) INR (10g) RMB (g) TRY (oz) AUD (oz)
31 January 2023 price 1,924 1,771 8,047 1,562 2,560 1,763 50,675 418 36,198 2,727
January return 6.10% 4.50% 5.20% 4.00% 4.10% 5.10% 5.00% 3.90% 6.70% 2.40%
Y-o-Y return 7.20% 10.80% 21.10% 17.00% 12.20% 5.90% 17.70% 13.80% 51.60% 7.30%

*Data to 31 January 2023. Based connected nan LBMA Gold Price PM successful section currencies: US dollar (USD), euro (EUR), Japanese yen (JPY), lb sterling (GBP), Canadian dollar (CAD), Swiss franc (CHF), Indian rupee (INR), Chinese yuan (RMB), Turkish lira (TRY), and Australian dollar (AUD).

Source: Bloomberg, ICE Benchmark Administration, World Gold Council

Futures blaze a trail

Our July 2022 commentary highlighted that nan uncommon occurrence of nett short levels for COMEX golden Managed Money futures1 was associated pinch a consequent beardown golden value performance.

Since nan nett short debased successful September 2022, golden has gained 15%. However, pinch only 4 specified lows successful nan disposable data, nan sample size gives america small statistical assurance successful nan signal. But breaking nett longs into constituent longs and shorts and incorporating golden ETF flows suggests that nan existent rally could beryllium sustained. In summary, we find that:

  • Gold’s capacity truthful acold has been akin to erstwhile post-low rallies, which were beardown and durable
  • Longs person been progressive indicating a buy-in to gold’s tactical case
  • Shorts, person not capitulated, suggesting that agelong positioning is not a crowded waste and acquisition yet
  • European golden ETF outflows person masked nascent affirmative flows successful America
  • Futures lead changes successful North American ETFs by up to 2 weeks

As a result, rising nett longs could entice further ETF inflows, prolonging nan rally.

Net shorts low: a catalyst

Our erstwhile study successful 2022 focused connected nan awesome worth of COMEX futures positioning information for golden prices. We recovered that uncommon nett short positioning had preceded beardown golden value rallies, accordant pinch oversold and under-owned sentiment. We addressed nan mini sample of golden nett shorts by z-scoring2 nan bid and besides combining it pinch signals from positioning successful nan US Dollar Index (DXY) and nan US 10-year Treasury early - 2 cardinal short-term drivers of golden which were besides adjacent to extremes. The awesome improved markedly and suggested, based connected nan humanities relationship, a precocious probability of affirmative guardant returns for gold.

Chart 2: Gold’s rallies from a futures nett short low* person historically been beardown and durable

Gold’s rallies from a futures nett short low* person historically been beardown and durable

Sources: Bloomberg, World Gold Council


Each statement shows nan cumulative percent alteration successful nan golden value (LBMA Gold Price PM) per week, pursuing a debased successful nett (short) managed money futures only series, arsenic a % of unfastened interest, from nan Commitment of Traders (COT) report. The array shows nan 17-week (analysis done connected COT merchandise from nan 24th January), 26-week (c 6-month), and 52-week capacity station nan day of nan debased successful positioning.

Gold return station low
Date of low +16w +26w +52wk
15-Dec-15 16% 21% 9%
09-Oct-18 10% 10% 27%
23-Apr-19 18% 17% 33%
27-Sep-22 15%

At existent levels, these indicators are not informative arsenic we person since moved distant from extremes. So, we move to different factors for help. In particular, we look astatine really nan agelong positions and short positions person behaved independently. In addition, we bring golden ETF flows into nan operation and we effort to find if futures positioning mightiness person a starring separator connected ETFs, which to day person been reluctant to subordinate nan value rally.

The 15% summation successful golden since nan September 2022 debased was group has been akin to that of nan 3 erstwhile rallies (Chart 2). The inset array shows that these rallies were some beardown and durable - pinch 2015 marginally little so.

Longs progressive connected bully tactical case, shorts sceptical

The existent rally has fundamentally been aided by a falling US dollar, recession risk, expectations for little early liking rates, elevated geopolitical risk, precocious inflation, and cardinal slope buying, and successful our view, galore of these factors are group to continue successful 2023. Analysts’ value forecasts for golden look overwhelmingly successful favour of humble gains successful 2023.3 Twenty retired of 24 analysts successful nan 2023 LBMA precious metals forecast study spot nan golden value rising successful 2023. Fourteen retired of 16 progressive forecasters connected Bloomberg expect golden to rise. Given that nan awesome from our July 2022 study parameter is presently inconclusive we wanted to reside whether we could deduce different useful accusation from futures and pinch immoderate thief from ETFs to find if nan existent rally is sustainable.

Chart 3: Longs successful play. Shorts much reluctant to fto go

Longs successful play. Shorts much reluctant to fto go

Sources: Bloomberg, World Gold Council


COMEX managed money agelong and short futures only series, arsenic a % of unfastened interest. Data to 24 January 2023.

One characteristic of a rally that mightiness bespeak its imaginable sustainability is whether it is chiefly driven by an summation successful longs aliases a simplification successful shorts (short covering). A short-covering rally mightiness propose a little risk-reward to beryllium short but without a coagulated lawsuit to spell long. Conversely, a long-driven rally should bespeak nan belief successful a much sustained tactical and fundamentals-driven bull lawsuit (Chart 3). Longs (bold green) successful nan existent rally person been progressive successful a akin manner to nan erstwhile 3 post-low rallies.

On nan short side, nan simplification successful positions (bold reddish successful Chart 3) has been much muted than previously. This mightiness propose that immoderate scepticism remains and location are shorts still to capitulate.

Chart 4: Global ETFs person shunned nan rally…so far

Global ETFs person shunned nan rally…so far

Sources: Bloomberg, Company Filings, World Gold Council

Data to 24 January 2023. On Goldhub, see: Gold-backed ETF flows. Data to 24 January 2023.

We besides looked astatine North American ETF flows (c.50 % of world holdings), arsenic futures are only portion of nan picture. Chart 4 shows a stark opposition betwixt nan flows successful nan existent rally compared to those from nan erstwhile three. There has been nary evident information from world golden ETFs truthful far. Even successful caller weeks, aggregate flows person been negative. But erstwhile we portion retired flows retired of European funds, US costs person now knowledgeable cumulative inflows since December (Chart 5).

Chart 5: North American ETFs are starting to adhd to holdings*

North American ETFs are starting to adhd to holdings

Sources: Bloomberg, Company Filings, ICE Benchmark Administration, World Gold Council


*Data to 27 January 2023. On Goldhub, see: Gold-backed ETF flows.

There has been nary evident information from world ETFs truthful far. Even successful caller weeks, aggregate flows person been negative. But erstwhile we portion retired flows retired of European funds, US costs person now knowledgeable cumulative inflows since December (Chart 5).

Should we expect golden ETFs to follow?

In addition, we besides tested whether futures mightiness supply a steer for golden ETF flows. We recovered that nett longs person a statistically important effect connected North American ETF flows successful particular, up to 2 weeks later. At a play level we don’t spot this arena successful reverse (Table 2).

There are 2 apt explanations for this. First, futures are leveraged plays4 pinch greater semipermanent holding costs than golden ETFs and truthful lend themselves to much short-term tactical investments. ETFs, connected nan different hand, person some tactical and strategical finance appeal. This would propose that turns successful nan marketplace are likely, connected average, to beryllium led by futures. Second, futures positioning reports are released connected a Friday but bespeak nan erstwhile Tuesday’s data. It is apt that location is an further signalling effect connected some futures and ETFs erstwhile nan information is released. However, nan 2nd lag of futures is besides not acold from being important (p-value of 0.114), which gives america much assurance successful our mentation of nan results. All successful all, we position nan tactical lawsuit for golden to beryllium good. Futures whitethorn person led nan rally truthful acold but we expect ETFs are apt to follow.

Table 2: Futures positioning appears to lead ETF flows, but not vice versa

Vector Autoregression Model connected alteration successful ETF holdings and alteration successful futures nett longs (Managed Money) arsenic a % of unfastened interest*

Dependent variable: Δ ETF Dependent variable: Δ Futures Net Long
VAR exemplary regression results
Lags Coeff Std. error T-stat P-value Sig
Constant 0.833 0.459 1.816 0.069 *
Δ ETF (-1) 0.305 0.034 8.984 0.000 ***
Δ ETF (-2) 0.152 0.034 4.522 0.000 ***
Δ Net Long (-1) 45.033 13.306 3.385 0.001 ***
Δ Net Long (-2) 21.176 13.388 1.582 0.114
Granger causality Test: statistic 7.928 0.000 ***
Lags Coeff Std. error T-stat P-value
Constant 0.000 0.001 -0.034 0.973
Δ ETF (-1) 0.000 0.000 0.753 0.451
Δ ETF (-2) 0.000 0.000 -0.693 0.488
Δ Futures Net Long (-1) 0.169 0.034 4.914 0.000 ***
Δ Futures Net Long (-2) -0.043 0.035 -1.231 0.219
Granger Causality Test: statistic 0.382 0.683

*Data from 20 June 2006 to 31 January 2023. Weekly connected Tuesday. Optimal VAR exemplary lags estimated via BIC criterion. Futures = Net Managed Money / OI Individual bid ΔETFs and ΔFutures Net longs are differenced transforms of nan original level series. Both transformed bid are stationary astatine nan 1% level utilizing ADF test, a request of some a VAR exemplary and nan Granger Causality Test. The Granger Causality uses an F-test (among others) to find if lagged independent variables ‘Granger-cause’ (impact) nan limited variable. It is important to statement that nan trial does not reason causality but simply suggests a relationship. Results are robust whether nan limited adaptable is North American ETF flows aliases Total ETF flows, though nan lag effect is marginally weaker. They are besides robust whether nan bid are first differenced aliases log differenced (to relationship for heteroskedasticity).

Source: Bloomberg, Company Filings, ICE Benchmark Administration, World Gold Council

In summary, though rare, nett short lows successful futures positioning person historically been associated pinch beardown and durable golden value rallies. The existent rally looks similar; nan information shows that it is not simply a short covering rally. Longs person been arsenic progressive arsenic successful nan past, suggesting a buy-in to gold’s bully tactical case. Shorts, connected nan different hand, person not capitulated arsenic fast. There mightiness beryllium a lingering scepticism towards nan rally, which whitethorn bode good arsenic nan waste and acquisition doesn’t look crowded. Global golden ETFs person amazingly stayed connected nan sidelines during nan rally, but North American costs are dipping their toes, and futures person historically led flows successful golden ETFs.

Regional insights

China: As nan nationalist COVID infection activity peaked successful December, China's economical activities bounced backmost - reflected by nan m-o-m jump successful January’s wide Purchasing Managers’ Index (PMI). This, coupled pinch nan accepted income boost astir nan Chinese New Year holiday, boded good for section golden request successful January, putting a extremity to nan downward inclination of nan Shanghai-London golden value premium. Meanwhile, nan People’s Bank of China announced different golden reserve summation of 15t successful January.

India: The section golden value touched an all-time precocious clip breaching Rs57,000/10gm levels that dampened unit request during nan month. Demand remained immoderate marginal support from wedding purchases during January, but nan wide sentiment remained bearish. Anecdotal grounds besides suggested little stocking by nan manufacture successful anticipation of a simplification successful civilization work connected golden during nan Union Budget, which did not happen.

With muted demand, nan section marketplace continued to stay successful a persistent discount for nan 3rd consecutive period pinch an mean discount of US$28-30/oz during nan month.

Europe: Both nan Bank of England and nan European Central Bank continued taking nan conflict to their ostentation problems, pinch each raising liking rates successful early February by 50bps. Neither signalled a important alteration successful nan existent stance, amid a backdrop of elevated ostentation and caller section equities and sovereign bonds strength. Consensus expectations person besides shifted somewhat since nan commencement of nan year, pinch belief that a recession successful nan region mightiness beryllium milder than had initially expected. This continued hawkishness from nan region's cardinal banks, arsenic good arsenic a marginally amended economical outlook, whitethorn spell immoderate measurement to explaining why European golden ETFs saw US$2.1bn (33t) of outflows successful January.

US: After different bonanza twelvemonth for US unit golden finance - 2022 was nan 3rd largest twelvemonth for home golden barroom and coin request - nan US Mint reports continued appetite for golden bullion coins successful January. Combined income of Eagle and Buffalo coins successful January reached 222,500 oz, though this was beneath nan gait of caller years, which is accordant pinch reports of a caller softening of premiums successful nan market.

Central banks: Central banks added a further 28t to world charismatic golden reserves successful December, capping disconnected a singular twelvemonth for request from this sector. In 2022, cardinal slope request totalled 1,136t, nan 13th consecutive twelvemonth of nett purchases and an all-time record. Read much successful our latest Gold Demand Trends report

ETFs: Global physically-backed golden ETFs saw nett outflows of US$1.6bn (26t) successful January (Table 3). This was chiefly led by costs from Europe (-US$2.1bn, -33t), perchance impacted by nan area's rising liking rates, appreciating currencies, and strengthening section equities. Asian costs mislaid US$246mn (-4t) during nan month, led by outflows from China. In contrast, North American costs witnessed their 2nd period of inflows successful a row, amounting to US$572mn (9t). Funds listed successful nan 'Other' region besides recorded affirmative request (+US$104mn, +2t) during nan month. Overall, world golden ETF assets nether guidance totalled US$213bn (3,446t) by nan extremity of January, a 5% summation from nan erstwhile month, aided by nan golden value increase, moreover though tonnage holdings declined.

Table 3: European ETFs led mini nett outflows successful January

Gold ETF holdings and flows by region*

Total AUM(bn) Fund Flows(US$mn) Holdings(tonnes) Demand(tonnes) Demand(% of holdings)
North America 107.4 572 1,736.10 9 0.50%
Europe 94.8 -2,075.30 1,532.90 -33 -2.10%
Asia 7.4 -245.6 114.8 -4 -3.30%
Other 3.9 104.3 62.5 1.7 2.80%
Total 213.4 -1,644.60 3,446.20 -26.2 -0.80%
Global inflows / Positive Demand 2,431.90 16 1.20%
Global outflows /Negative Demand -4,076.50 -42.3 -2.00%

*Data to 31 January 2022. On Goldhub, see: Gold-backed ETF flows. Source: Bloomberg, Company Filings, ICE Benchmark Administration, World Gold Council

Source: Bloomberg, ICE Benchmark Administration, World Gold Council


1 COMEX Managed Money nett agelong futures only arsenic a % of unfastened interest.

2 Investing successful a early only requires an first separator of nan afloat investment, which provides leverage to nan investment. This is presently conscionable nether 4% for nan COMEX GC statement (source: Bloomberg).


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