Like a highly decorated jumper, Gold easily takes the 2,000-meter hurdle. Especially among institutional investors, gold has become socially acceptable. They are increasingly confronted with the USD 16 trillion problem. That is how high the volume of bonds (investment grade) with negative returns can be quantified. Investment alternatives are therefore a rare commodity.
We expect investment demand to continue to rise due to the current interest rate and uncertainty situation. Especially since the gold content of institutional portfolios is still extremely low, at less than 0.5 percent. Also the fact that the status of the US dollar as the ultimate safe haven is at least getting a scratch, speaks for continued high investor interest. At this point, it should also not be forgotten that the gold market is very tight. The globally outstanding Gold Exchange Traded Funds (ETFs) have a market capitalisation that is just about the same as that of SAP and Zalando. Even if major investors only marginally increase their gold positions, this can have a significant impact on the gold market.
In recent years, the gold price has been driven mainly by the emerging markets. But the tide has turned completely and a structural break has occurred. For example, jewellery demand in the emerging markets fell by up to 70% year-on-year in the first half of 2020. China and India, the two most important jewellery buyers in the world, are also reporting a sharp slump of around 60%. However, ETF demand in the industrialized countries alone can more than compensate for this negative effect. One can therefore state unequivocally The gold price rally is driven by investors!
At the moment there is little to suggest a full-blown correction for gold, but a short breather is nevertheless to be expected. By the end of the year, however, gold will make itself comfortable above the USD 2,000 mark.