The World Gold Council (WGC) reports that global gold holdings reached a new all-time high of 3 785 t in July.

This after gold-backed exchange-traded funds (ETFs) and similar products recorded an eighth consecutive month of positive flows in July, adding 166 t, or $9.7-billion.

The price of gold hit a record high, first at $1 976/oz at the end of July and again at $2 000/oz on August 4, leaving global assets under management standing at just under $240-billion.

Global net inflows of 899 t, or $49.1-billion, to date are considerably higher than previous annual highs and the WGC says the trade of inflows has continued in the first few trading days of August.

While all regions had net inflows in July, North American funds led by a significant margin, accounting for 75% of global net inflows.

The North American region added 118 t, or $7-billion, while European-listed funds added 40 t, or $2.1-billion.

Asian-listed funds rose meaningfully during July by 4.9 t, or $370-million, and funds listed in other regions registered a 3.4 t, or $218-million, gain.

The WGC explains that while the price of gold reached all-time highs in nominal terms, it remains below the inflation-adjusted record, which is $2 800/oz.

Additionally, the Commitment of Traders report for gold COMEX futures often highlights speculative positioning, which can sometimes serve as a contrary indicator at extreme bullish or bearish levels.

COMEX is the primary futures and options market for trading metals such as gold, silver, copper and aluminium.

The WGC states that while bullish sentiment was at extreme levels in February, at 1 209 t, or $63-billion, it subsided meaningfully to 863 t, or $55-billion, in July.

“Finally, in our blog titled ‘Is gold ready for a pause technically?’, we noted a few technical indicators that suggest gold could pause, at least in the short run.

“Global gold trading volumes rose sharply to $194-billion a day in July, up 24% from $167-billion in June. Daily trading volumes remain below the year-to-date record of $233-billion seen in March, but comfortably above the 2019 daily average of $145-billion.

“Global gold futures interest spiked in July to $120-billion, above the $98-billion from June,” the council notes.

LOOKING AHEAD

The WGC often describes the fundamental drivers of gold as being a function of economic expansion, risk and uncertainty, opportunity cost and momentum.

The current market environment highlights the multifaceted nature of gold price behaviour.

As noted in its most recent Gold Demand Trends report, for the second quarter, economic weakness has significantly hurt jewellery, bar and coin and technology demand, which have averaged 86% of total gold demand over the past ten years.

But, the WGC says geopolitical and economic uncertainty remains supportive for gold investment, and with real rates near or at all-time lows globally, the cost of holding gold remains low.

Finally, investment demand and momentum appear to be more than offsetting the shortfall from the economic weakness side. With the recent demand shift, only 32% of demand came from jewellery, bar and coin and technology in the second quarter of the year, with the remainder coming from investments – such as gold ETFs – and central banks.

The council comments that the timeframes of a global economy recovery, and which “letter shape recovery” it ultimately takes, remain unclear.

“In our mid-year outlook, we noted a growing consensus that the V-shaped recovery may be morphing into a U-shaped recovery, or that we could even experience more of a W-shaped recovery amid subsequent waves of infections.

“At present, Covid-19 cases appear to be resurfacing, not just in the US but in other countries that had earlier appeared to contain the outbreak. The ultimate effect of this is still very much unknown,” the WGC reports.

The true state of the economy may not be reflected in all places. Record stimuli and easy money by central banks appear to have driven investments in equities higher, despite weak economic indicators.

“Ultimately, it could be the behaviour of central banks – with their continued expansionary monetary policy – that drives gold higher, as was a large contributor to the multi-year bull market in the price of gold following the great financial crisis and subsequent quantitative easing.”