Gold Prices Up Despite Higher Rates, Stronger U.S. Dollar. This is How.
Gold Prices Up Despite Higher Rates, Stronger U.S. Dollar. This is How.
By:Ilya Spivak
Gold prices managed to rise despite higher interest rates and a stronger U.S. dollar. A buying spree from China seems to explain why.
Gold prices have rallied despite higher interest rates, stronger U.S. dollar.
Futures and ETF positioning hints at soggy speculative appetite for gold.
China seems to be the buyer driving the market as it builds gold reserves.
Gold has enjoyed a blistering rally in recent months.
In March, prices punched through the top of a multi-year range that contained them for nearly four years, marked by the August 2020 high set just below the $2,100 per ounce level. Since the start of that month, they have rallied as much as 19.3% to touch a record high above $2,400 per ounce.
The forces driving the rally appear to be somewhat confounding.
Gold typically acts as a foil for the path of interest rates and the U.S. dollar. This makes sense. The metal confers upon its buyers a yield of 0. Rising rates offering positive interest income streams on other assets make it unattractive by comparison.
Similarly, a stronger greenback undercuts the appeal of an alternative store of value to fiat currency.
Is gold affected by rising rates and a stronger U.S. dollar?
The latest rally has pointedly decoupled from these long-standing dynamics. Rates have marched higher since the beginning of the year as markets responded to a run of hotter-than-expected U.S. economic data, which markets interpreted as reducing scope for Federal Reserve rate cut expectations. The dollar rose in tandem.
What’s more, data tracking the markets’ speculative appetite for gold suggests the absence of the kind of bullish upswell that might have accompanied the metal’s heady gains this year.
Futures positioning data that the Commodity Futures Trading Commission (CFTC) publishes in its Commitment of Traders (COT) report shows net speculative longs have languished in a range since April 2023 even as prices soared. Meanwhile, gold holdings in the bellwether SPDR Gold Shares ETF (GLD) have dropped to a five-year low.
Gold price rally: who’s buying?
That gold is not responsive to familiar macro catalysts seems to line up with the sense that speculative interest is not the primary impetus for price gains. However, the change in trading patterns seems to line with an accelerated pace of gold reserve accumulation by China.
The pace of buying by the East Asian giant’s central bank began to accelerate in the second half of 2022 and ramped up to 11.2% year-on-year by the end of 2023, the highest in eight years. It is unclear why Beijing embarked on this buying spree. But while it continues, even the usual headwinds seem unable to check the rally in a lasting way.
Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak
For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro.
Trade with a better broker, open a tastytrade account today. tastylive, Inc. and tastytrade, Inc. are separate but affiliated companies.
Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.
tastylive content is created, produced, and provided solely by tastylive, Inc. (“tastylive”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastylive is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer. Options, futures, and futures options are not suitable for all investors. Prior to trading securities, options, futures, or futures options, please read the applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange-Traded Options Risk Disclosure found on tastytrade.com/disclosures.
tastytrade, Inc. ("tastytrade”) is a registered broker-dealer and member of FINRA, NFA, and SIPC. tastytrade was previously known as tastyworks, Inc. (“tastyworks”). tastytrade offers self-directed brokerage accounts to its customers. tastytrade does not give financial or trading advice, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastytrade’s systems, services or products. tastytrade is a wholly-owned subsidiary of tastylive, Inc.
tastytrade has entered into a Marketing Agreement with tastylive (“Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’s brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade. tastytrade and Marketing Agent are separate entities with their own products and services. tastylive is the parent company of tastytrade.
tastycrypto is provided solely by tasty Software Solutions, LLC. tasty Software Solutions, LLC is a separate but affiliate company of tastylive, Inc. Neither tastylive nor any of its affiliates are responsible for the products or services provided by tasty Software Solutions, LLC. Cryptocurrency trading is not suitable for all investors due to the number of risks involved. The value of any cryptocurrency, including digital assets pegged to fiat currency, commodities, or any other asset, may go to zero.
© copyright 2013 - 2024 tastylive, Inc. All Rights Reserved. Applicable portions of the Terms of Use on tastylive.com apply. Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastylive’s podcasts as necessary to view for personal use. tastylive was previously known as tastytrade, Inc. tastylive is a trademark/servicemark owned by tastylive, Inc.