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.