While two major market risks – the US election and the Covid-19 pandemic – appear to have subsided, it still drove risky assets like stocks to all-time highs in some countries, and the MSCI World Stock index had its best monthly performance in November, highlighting the global impact of both developments.

As these two risks subsided, investors reduced hedges, and this was reflected in the gold exchange-traded fund (ETF) outflows, higher bond yields, and stock market put/call ratios at extremely bullish levels, the World Gold Council (WGC) said on December 9.

While one of the drivers of gold demand is diversification in times of market stress, in such circumstances, other drivers may come into play and influence pricing.

Although the WGC’s third quarter ‘Gold Demand Trends’ highlighted a common  theme – that a weaker global economy negatively impacted on consumer demand for jewellery and technology –  the council’s recent data suggests that the improving Chinese economy and the festival season in India may have spurred consumer demand. 

Central banks have resumed net buying in October and have been quarterly net sellers in the third quarter for the first time in ten years.

Additionally, as the WGC discussed frequently, the low-rate environment that improves gold’s opportunity cost is likely to remain, it confirms, especially as many countries start to inject additional stimuli into their economies.

In November, gold-backed ETFs and similar products (gold ETFs) recorded their first net outflows in 12 months and the second-largest monthly outflows ever.

Gold ETF holdings decreased by 107 t during the month – $6.8-billion, or 2.9% of assets under management (AUM) – as the gold price had its worst monthly move (-6.3% to $1 763/oz) since November 2016, when it dipped 7.4%.

Despite lacklustre performance this month, net inflows of 916 t ($50.3-billion) in 2020 remain well above the highest yearly amount on record, although below the record set last month (over one-million tonnes).

Total global holdings are now at 3 793 t, or $215-billion.

In terms of the monthly regional overview, positive equity-market sentiment and a risk-on environment drove gold ETF outflows across all regions during November, the WGC said.

Both North American and European funds each lost nearly 3% of assets, Asian funds had outflows of 400 000 kg, while funds listed in other regions had another month of outflows, relative to their size, of 2 t.

Higher trading volumes and an increased bearish positioning in the options space are forecast, the council noted, adding that in November, daily gold volumes increased, returning to just above the year-to-date averages, trading $190-billion a day.

Despite gold’s weak performance, net long positioning – via the recent Commitment of Traders report for gold Comex futures – showed minimal reductions at 746 t ($42-billion), slightly below the 766 t level in October.

Net longs are well below the 2020 average but still above the long-term average, the council said.

Notably, implied volatility, or the expected future price movement of gold, did not increase meaningfully, despite gold’s sell-off. However, the WGC noted that the put/call skew increased to one-year highs and call skew decreased to one-year lows.

“This suggests that, while investors may not anticipate large absolute moves in the gold price, they are positioning much more for downside exposure than for upside exposure.”