A surprise rally. The first two months of 2024 saw muted gold price movement, with bullion notching a marginal loss of -0.9% as at end February. This weakness, however, was short-lived as gold quickly rallied to a series of new record highs in subsequent weeks. As at 15 April, gold trades at USD2,353/oz., approximately 14.1% up year-to-date. This rally, while impressive, has left market observers puzzled as bond yields and the US dollar did not weaken nearly enough to warrant such a substantial rally. In fact, between 1 March and 1 April, the 10-year US Treasury yield and DXY index strengthened 8.9% and 2.0% respectively; gold rallied 13.0% during the same period. This move affirms our view that the inverse relationship between gold, and Treasury yields have indeed weakened substantially. With gold’s recent moves seemingly driven by factors outside of the dollar and Treasury yields, analysts have been left divided on what is responsible for this recent sudden spike in gold price.
Figure 1: Gold continues to climb despite strengthening dollar and Treasury yields
Source: Bloomberg, DBS
Geopolitical risk a key short-term driver.In the past, a gold rally as significant as this will usually be accompanied by a clear catalyst or risk event. This time however, reasons have been more ambiguous. Several factors have been postulated for the recent rally, including safe haven demand as well as weakening US macroeconomic data. On safe haven demand, the protraction and escalation of the long-standing Russia-Ukraine war and the Israel-Hamas conflict continues to boost the allure of gold as a hedge against geopolitical risk. With Iran entering the fray in the Middle East, geopolitical risk premiums for gold will likely rise moving forward.
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