Yesterday (April 11th at 5:00 PM) the gold price reached a new record of €70,313/kg
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The silver price reached around the same time €852/kg - the highest rate since November 2012!

Gold above 70,000 euros per kg, who would have thought? In the first quarter of this year, we have seen a confluence of factors that have significantly driven up the price of gold. Is this then the 'perfect storm' for gold?

Two weeks ago, I listed various drivers behind this price increase. Yet, it remains intriguing why the gold price, especially at this moment, continues to climb so powerfully. It is a well-known fact that the gold price increases with high geopolitical risks and falling interest rates. Geopolitical tensions have been high for years, and a rate cut by the Federal Reserve (FED) has yet to occur.

Recently, the U.S. inflation figures for March on a yearly basis were published, with an outcome of 3.5% versus an expectation of 3.4%. The persistent inflation poses a difficult question for the FED. The market is currently anticipating a rate cut by the FED on June 12, with a probability of 16.4% — a significant drop from the 68.7% chance given earlier in March. This suggests a possible delay of the rate cut in the U.S. With the upcoming elections in November, it is expected that both Joe Biden and Donald Trump will promise a rate cut to win voter favor in hopes of the presidency.

The growing realization that the dollar is decreasing in value due to high inflation, caused by printing money, has led many to worry about declining purchasing power. This makes gold, as an investment that retains its value and is capable of keeping up with inflation, an increasingly attractive option for many looking to protect their wealth.

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The gold price has notably risen again following the disappointing news of the inflation figure. Unrest in the Middle East also plays a role in this. With the region on high alert due to the threat of a possible retaliation by Iran after an alleged air strike by Israel on the Iranian embassy in Syria, concerns remain high. This week, we saw that talks between Israel and Hamas, despite more than half a year of conflict in Gaza, are still not bearing fruit. "Prices remain sensitive to geopolitical developments in the Middle East, with market participants factoring in the risks of supply disruptions should tensions persist," said Yeap Jun Rong, market strategist at IG.

In addition, central banks continue to increase their gold reserves, a trend that also continued in February. It seems they have no intention of stopping this practice for the time being. As I mentioned in my newsletter on March 28th, central banks manage about 17% of all the above-ground gold available. This means that one in six gold owners is a central bank, making it essential to closely monitor the activities of these financial institutions. And their current action? Buying.

Disclaimer: The information on this webpage is not considered investment advice or an investment recommendation.

Of all the above-ground gold, 22% falls under the category of 'bars and coins', including gold-backed ETFs. Furthermore, 45% of the available gold consists of jewelry. Therefore, these two segments deserve our attention. Remarkably, we see that especially in China, India, and Turkey, the demand for gold, both in the form of jewelry and bars and coins, is significant. For example, in China in 2023, there was a 10% increase in the purchase of gold jewelry compared to the previous year. In India, there was a 7% increase in the sales of gold bars and coins compared to the previous year. (Indians also massively bought silver, more on this at the bottom of this newsletter.)

These data point to a clear conclusion: the demand for gold is only increasing. However, what particularly stands out is that the trading volume of the largest gold ETF has been declining for two years. From the chart below, one could infer that until the beginning of 2023, the trading volume and the gold price moved hand in hand. However, since the beginning of 2023, a significant gap has emerged between them. This suggests that the ETF's volume now has little influence on the gold price. The big question now is: what happens if this trading volume starts to rise again? Then, the gold price could soar to heights that even our grandparents could not have imagined.

In India, the love for precious metals has not been limited to gold alone; there has also been a significant amount of silver imported. The silver price is now €835 per kilo, marking an impressive increase of 20.5% since the beginning of the year. This has given silver a higher percentage growth than gold, which has risen by 16.5%. This leads to a gold/silver ratio of 83, a decrease from 87 last week. Next week, we will delve deeper into silver, and of course, we cannot overlook platinum - the often-overlooked precious metal.