Insights

• Reported global central bank gold reserves, via the IMF and publicly available sources, rose by a net 77t in September
• Gross sales (1t) were dwarfed by gross purchases (78t), highlighting the strength of buying

Gold has gained 3% this week largely attributed to an escalation of geopolitical tensions linked to the Israeli-Palestinian conflict.

China’s local gold price premium has rocketed to previously unseen levels, reaching US$121/oz on 14 September. And August’s US$41/oz monthly average already marked a record since the Shanghai Gold Exchange’s establishment in 2002.

Expectations for the end of the BoJ’s negative policy rate intensified

The BoJ relaxed its yield curve control (YCC) program in late July. Governor Ueda’s first surprise move since taking the wheel: he effectively doubled the YCC’s upper limit to 1%, while keeping the policy rate unchanged at -0.1%. This led to surges in both the 10-year JGB yield and its volatility. 

Gold prices quoted in USD and RMB headed in different directions in August. Major factors including rising US Treasury yields and a strong dollar weighed on the international gold price in USD. But the Chinese currency weakness, which depreciated by 2% against the dollar in the month, led to a mild increase in the RMB gold price.

A lot has been made of the convergence of yields for cash, bonds and equities (on an earnings yield basis), with the higher yield on offer in the cash space leading many investors to reassess their portfolio exposures.

Despite June weakness, the LBMA Gold Price AM in USD and the Shanghai Gold Benchmark PM (SHAUPM) in RMB ended the first half of 2023 higher by 5% and 9% respectively – the depreciation of RMB against the dollar over the period contributed to the significant difference.

Costs in the gold mining industry resumed their upward trajectory in the first quarter of this year. This followed a short-lived break in Q4’22, when gold miners’ average all-in sustaining costs (AISC) had fallen by 1% q/q. Prior to this, costs had risen for the past three consecutive quarters, stretching back to Q1’22.

Global central banks reported net sales of 27t in May, less than half the net sales seen in April. Excluding Türkiye’s sales, the trend in central bank buying is still in place.

Central bank gold reserves declined by 71 tonnes in April, primarily due to Turkish selling. Despite this, we expect central banks to remain net buyers in 2023, supported by their overall positive sentiment towards gold reserves.

Central bank gold demand in 2023 picked up from where it left off in 2022. In January, central banks collectively added a net 31t to global gold reserves  (+16% m-o-m).

In December, central banks have reported adding a net 28t of gold to global reserves, down sharply (53%) from the previous month (60t).

The international gold price jumped by 7.4% in November to US$1,760/oz, boosted by lower yields and dollar weakness.

The domestic gold price diverged from the international gold price: the MCX Gold Spot price rose marginally by 0.2% compared to a 2% decline in the LBMA Gold Price AM in USD

Gold’s price divergence continued: the Shanghai Gold Price Benchmark PM (SHAUPM) in RMB rose by 1%, while the LBMA Gold Price AM in USD saw a 2% fall in October.