The Investmentcase for Gold

The Commodity Report #189

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The Investmentcase for Gold

Some time has passed since I wrote the last time about gold. Currently, a situation is developing that could become interesting for investors in the shiny metal.

While till this day many market experts have the opinion that the gold price is highly correlated to the US-Dollar as well as the relative trajectory of where yields are headed, I think that gold is primarily driven by liquidity conditions. Therefore gold is for me not a safe-haven or per se an inflation hedge - but instead a liquidity hedge. Once inflation spikes, the price of gold usually has already long peaked.

Recently liquidity conditions actually worsened a bit - providing a small headwind - but overall conditions remain pretty loose according to our model and as long as this doesn’t change the long-side is the only side we’re interested in gold.

Also good to know - according to our CoT model there remains an active buy signal in the market. Higher highs are therefore great buying opportunities - judging the data today. (we have strong opinions that can change quickly, but therefore we have our institutional research product and advisory services)

Overall - and now I speak medium term - I do expect that liquidity conditions will loosen even further under the Trump administration. While I don’t think that the US-Dollar isn’t the primarily driver of the gold price - I still think it is an important contributor to the price trajectory. This could be especially important once the US-Dollar strength starts to crumble. And judging Trumps last term, this should happen sooner than later. I think there is a reasonable chance that the US-Dollar will give back some of its gains once he’s in office and implements some parts of his agenda. After that (probably during Q2), we see a weaker US-Dollar during 2025 (which is not consensus at all).

Another tailwind could be the gold-buying-spree of central banks. UBS recently mentioned in a note that they think that central banks will - after a less intensive gold buying year in 2024 - start adding to their gold positions again during 2025. Another tailwind could be renewed interest from ETF-buyers, the bank writes.

In the short term, the bank also expects CTA-flows in gold to continue to be positive.

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In Other News…

Brazil coffee exports reached a new all-time-high of 50 million bags in 2024:. That amount led to $12.5 billion in revenue, which was 55% more than in 2023 as coffee prices rose sharply throughout the year.

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This week, look out for the following:

• The inauguration of Donald Trump as the 45th President on Monday

• Flash PMIs of Friday

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Research Service

If you’re an institutional investor, check out our research products for commodity-related futures or equities here.

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Till next Monday, Lukas

If you have any questions in the meantime, please feel free to contact me via X or Mail.

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