Gold is trading near its record high of around $2070 an ounce
Photo: SEBASTIAN DERUNGS/ AFP
Gold fans need strong nerves at the moment.
The price of the precious metal has risen steadily since October 2022 and has again approached its record high of around $2,070 an ounce in August 2020.
But since the beginning of February things have suddenly gone in the other direction: the price of gold has fallen from more than $1,950 an ounce to the current $1,880.
Has the rally already ended?
It is too early for such a judgement.
After all, setbacks like the recent one on the gold market are not uncommon after strong upward phases.
"We suspect that there was profit-taking here," explains
, managing director of the Austrian precious metals dealer Philoro, to manager magazin.
"2022 was a good year for gold, as can be seen from the price trends. Many market participants and investors stocked up on gold over the course of the year. Part of this has now been sold at a good price."
On the one hand.
On the other hand, the strong influence of the US dollar on the price of gold is once again noticeable.
The reversal in the gold market coincided with the release of strong US jobs numbers.
According to the official report, 517,000 new jobs were created there in January.
Experts had only expected around 185,000 new jobs.
This was followed by a consideration that has often caused movement on the financial markets in recent months: strong US job data = robust US economy = more leeway for the US Federal Reserve to raise interest rates further.
This explains the rise in the US dollar since the beginning of February.
Because the prospect of further interest rate increases increases the attractiveness of the dollar area for investors and directs capital flows there.
When US interest rates rise, the dollar usually rises as well
The price of gold, on the other hand, often moves in the opposite direction to the dollar: a strong US currency makes the precious metal more expensive outside the dollar area and thus depresses demand.
Conversely, as the dollar falls, the price of gold rises.
For investors from the euro area, gold can be a hedge against currency fluctuations.
How the price of gold will continue does not only depend on the dollar and euro.
Inflation, the global economy and many other influencing factors play a role.
In the opinion of Philoro Managing Director Scherer, three groups are particularly important: the jewelry industry, private buyers and investors, and the central banks.
These three groups have the greatest influence on gold price formation, according to the expert.
"Bullish": Philoro managing director
believes in a rising price of gold
In 2022, investors and central banks in particular caused movement on the market.
General uncertainty over the war in Ukraine, the energy crisis and fears of recession lured investors into the precious metal, which enjoys a reputation as a "safe haven".
According to the industry association World Gold Council (WGC), global demand for gold in 2022 had risen to its highest level since 2011.
On the one hand, the decisive factor was a high level of demand from private investors who wanted to protect their assets.
In addition, central banks in particular acquired large amounts of gold last year.
Consequence: According to the WGC, the total demand for gold rose to 4741 tons worldwide in 2022.
This is almost the level of 2011 and an increase of 18 percent compared to the previous year.
"The desire for wealth protection in a global inflationary environment remained a key motive for buying gold assets," the WGC report said.
Central banks stock up
The central banks in particular have recently played a notable role in the gold market.
Many central bankers in less US-affiliated states were apparently alarmed by the West's sanctions against Russia and are trying to bring their foreign exchange reserves to safety.
As part of the punitive measures for Russia's attack on Ukraine, Western countries cut off the Russian central bank's access to large parts of the country's foreign exchange reserves abroad.
This may have alarmed other countries, for which the motto now is: Get out of the dollar and into gold.
Central banks around the world, for example, significantly increased their gold holdings, particularly in the second half of last year.
In the last quarter of 2022 alone, central banks purchased a total of 417 tons of gold, according to the WGC.
That was almost twelve times as much as in the final quarter of the previous year.
Overall, central bank purchases amounted to 1,136 tons, more than twice as much as in the previous year.
"The central banks have the advantage of being able to buy and trade anti-cyclically," says Philoro boss Scherer.
"These institutes also always have a long-term and strategic investment focus. They can thus better ride out certain situations, such as lower gold prices."
The central bankers may have received confirmation of their skepticism about dollar reserves this week when it became known that Russia now actually has to access its foreign exchange and gold reserves in order to plug a billion-dollar hole in the national budget.
According to the Russian news agency Tass, which refers to a statement by the Russian Ministry of Finance, Moscow sold 2.27 billion Chinese yuan (the equivalent of around 309 million euros) on the foreign exchange market in January.
In addition, Russia sold 3.6 tons of gold from the state reserve, which corresponds to a value of around 200 million euros.
"The funds thus obtained were transferred to the state budget account to cover the deficit," the statement said.
For your orientation: According to government figures, the total budget deficit in Russia in January was 1.76 trillion rubles (23 billion euros).
The country's spending has skyrocketed recently, presumably because of the cost of the war in Ukraine.
These sales by the Russian side have hardly any effect on the price of gold, says expert Scherer.
However, central banks as a whole play a powerful role.
Central banks' "enormous" purchases are a "huge driver," said
, senior analyst at the WGC, according to the Financial Times.
"Since 2010, central banks have been net buyers after two decades of being net sellers," Gopaul said.
The expert sees the lack of "counterparty risk" as the reason for the interest of the central banks, unlike with foreign currencies, each of which is backed by a government.
The largest gold buyer among the central banks was the institute in Turkey.
The Turkish central bank alone acquired 148 tons in 2022, increasing its holdings to 542 tons.
Turkish demand for gold jewelery also increased by more than 30 percent, according to Bloomberg.
Gold is used by Turkish households as a hedge against inflation and against the depreciation of the Turkish lira, the report said.
The inflation rate in Turkey temporarily rose to 85 percent in 2022.
The question now is: How is the gold market going?
According to WGC analyst Gopaul, central banks are unlikely to continue buying at the same level this year, as growth in foreign exchange reserves is also slowing overall.
In addition, the recently improved economic prospects are apparently already reducing the interest of private investors in gold investments.
According to the issuer Wisdom Tree, inflows into gold ETCs have already decreased in recent weeks.
At Lang & Schwarz, too, the investment vehicles that follow the price of gold are no longer in demand, the Frankfurt Stock Exchange reports.
The result of a survey by Spectrum Markets, a European trading place for securitized derivatives based in Frankfurt, fits in with this.
Accordingly, investor sentiment regarding investments in gold fell in January this year to its lowest level since monitoring began in 2019. Retail investors appear to be taking a positive view of macroeconomic developments, says
, Head of Distribution at Spectrum Markets .
This is reflected in their increasingly bearish stance on gold.
Philoro managing director Scherer is nevertheless "bullish".
"Basically, we see the framework conditions for gold as positive for 2023," he says.
"We do not yet see the trend towards inflation as having finally stopped. We therefore continue to see general and especially geopolitical uncertainties in economic development."
According to Philoro, the price of a troy ounce of gold could break through the $2,000 mark again this year.