Gold has surged by over 17% since mid-February this year, in just around 50 days. The ascent has been consistent, with minimal retracements, and it has now reached historic highs of over $2300 per ounce.
Yesterday, a news report revealed that China’s central bank continued its gold purchasing streak for the 17th consecutive month in March, contributing to the precious metal's record surge. This makes sense, since it is typically, it's central bank buying or selling that triggers significant movements in gold prices.
Previously, gold futures had reached a high of nearly $2100 in August 2020. This move was in line with the declining trend in US 10-year bond rates, which plummeted to their lowest point in a decade, dipping below 1%. In consequence, gold rose and reached a historic high.
However, starting in August 2020, interest rates began to climb, eventually US 10 year note surpassing 4% over the next two years. During this time, Gold experienced a consistent decline, falling to close to $1600 by October 2022. Although there was a brief spike to around $2000 in this period due to geopolitical tensions following the Russia-Ukraine war in early 2022, gold quickly retreated afterward as bond yields increased.
In the past eighteen months, the US 10 year bond yield has hovered around 4%, within a range of 3.5% to 5%. And in substantial part of these eighteen months until mid-February this year, the gold futures moved in line with interest expectations with just a slight tilt upwards as the Fed indicated a number of rate cuts.
Up until around two months ago, all seemed to be in order. Now that link to the interest rate seems to have broken.
The sudden rise of over 17% in just the last fifty days can no longer be explained in terms of interest rate movement. The Chinese central bank buying that propelled the gold future past $2300 is a sign of something deeper.. More on this later.
See more than two decades of Gold Futures Chart:
See here US 10 Year Note Rates chart: https://tradingeconomics.com/united-states/government-bond-yield