Gold tends to perform well during periods of elevated uncertainty about economies and financial systems — something the world has seen a lot of in recent times.
Yet each time the metal rallied above $2,000 an ounce, it quickly falls back below that level.
This pattern, according to Joe Cavatoni from the World Gold Council, has a lot to do with the dynamics of the gold market where real-world demand for the metal is reduced as the metal’s price reaches a certain level, and in this case, the $2,000/oz threshold.
“That $2,000 point, and those technicals, they start to impact some areas of demand for gold. We mentioned consumers, so jewelry in China and India, these are price-sensitive businesses and price-sensitive consumers,” Cavatoni said on this week’s What Goes Up podcast (Bloomberg), which discusses the main themes influencing global markets.
“So when you start seeing those types of price levels develop, that’s when you see those types of consumers back away from buying — and investors aren’t ready to step back in in the long-term. That’s why you’re seeing us peak out and hold off,” the WGC strategist explained.
Speaking on the subdued period post the March banking crisis — where gold is holding at around the $1,850-$1,950 level but not breaking out — Cavatoni said “it’s simply because institutional investors have not come back to the table.”
“The rangebound pricing behaviour we’re getting is being held up mainly by a lot of buying from central banks, which is a trend we’re seeing for a long time,” he added.
“So what we need to see next is some sort of understanding by the investment community that the policies we’re dealing are leading to a better outcome, and our expectation is that you’ll see these investors come back to the table,” Cavatoni said, referring to the monetary policy actions that would eventually reverse and propel gold prices higher.