Great chart: gold vs. global liquidity

In the past few months, gold has been showing some signs of ‘fatigue’ with market participants starting to price in a smooth ‘Covid-19 exit’ with the vaccination campaign. However, major drivers of the precious metal such real interest rates or the total amount of negative-yielding debt are still sending bullish signals; we think that market participants are underestimating the impact of social distancing and travel restrictions in the medium term.

With another 3tr USD of liquidity expected to reach market this year, it looks like the downside risk on gold remains limited as we think that most economies will rely on debt (therefore more liquidity) in the coming two years, which implies strong demand for the ‘currency of the last resort’.

Main risks in the near term: rising optimism over the vaccine campaign, warmer days and USD strength.

Source: Eikon Reuters, RR calculations

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