Strategic outlook for gold

In conversation with John Reade

John Reade, chief market strategist at the World Gold Council, discusses the strategic outlook for gold and recent trends in the yellow metal market. He examines gold’s value as a source of returns, liquidity and diversification, underscoring its long-term performance and lack of correlation to other major asset classes, such as US equities. An average US pension fund, Reade points out, would have enhanced their risk-adjusted returns with a higher allocation to gold over the past decade.

This is bolstered by gold’s performance in 2020 to date, Reade says. Gold has been the best-performing asset class this year, reaching a record high in multiple currencies. But this belies significant shifts in the underlying supply and demand dynamics. Exchange-traded fund demand has grown significantly, while central bank purchases and consumer demand (for example, in jewellery) have slowed. At the same time, Covid-19 has sparked powerful disruptions in the gold supply chain.

Reade notes that investment demand will remain key to the gold market over the medium-term, and that it will have to at least offset the uncertain outlook for consumer demand. ETF flows in particular will be a key market variable, in addition to US Treasury rates, measures of consumer demand in Southeast Asia.

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