All eyes on gold
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Marketing communication - For professional clients only
Gold has seen a remarkable rise since the start of 2024, climbing from below $2,000 per ounce in February, to over $2,300 today.1 The rally has not fitted normal patterns, coming in spite of higher real interest rates and a soaring US Dollar. This could affect its durability.
Gold normally moves inversely to real (inflation-adjusted) interest rates. Gold has no yield, so the opportunity cost is higher when real yields are positive. It has also usually shown strength at times when inflation is high, and expectations on interest rates are falling. It has also tended to move inversely with the US Dollar. None of these factors are in place today: it is clear the gold price seems swayed by other considerations.
Geopolitics is likely to be a potent factor. While geopolitical risk indicators are not at record levels, wars in the Middle East and Ukraine, plus tensions between the US and China and elections around the world, have been enough to create a febrile atmosphere in financial markets. It could be argued that Gold remains regarded a safe haven and has been a beneficiary of growing risk aversion.
Climbing US debt levels are also creating some nervousness among investors. The US debt to GDP ratio has risen to over 120%2, and neither Republicans nor Democrats appear inclined to tackle it. The Congressional Budget Office has said it is concerned on the levels of debt. This is likely to have been another factor in driving the gold market higher.
Trends in physical gold buying have created additional demand – and have helped to compensate for weaker investment demand. There has been enormous demand for gold from central banks. This is also being driven by geopolitics, with China and Russia looking to diversify from US treasuries in the wake of US sanctions on Russia. In 2022, one out of three ounces of gold mined went into a central bank vault, with similar patterns seen in 2023.3
Where next for gold?
All these factors have overwhelmed the usual relationships with real yields. For investors, the question is whether this can continue in the longer-term, or whether normal patterns will resume. Certainly, the gold price appears remarkably high given the level of real interest rates, and weakening expectations of rate cuts.
High prices in the physical market are starting to dampen gold demand in key markets such as China and India. Gold has picked up slack from weakening property and equity markets in China. The population hasn’t had much else to buy. However, any tentative recovery in the property or – more likely – the equity market, may weaken demand for gold. In the short-term, investment buyers such as asset managers are expected to absorb some of the excess. However, the market may need to recalibrate at some point.
Bars and coins have seen spectacular demand in 2022 and 2023, but moderating inflation expectations have seen demand fall. There may be less central bank buying this year and next, though geopolitical pressures are likely to ensure that it remains elevated and a source of longer-term support for the gold price.
Trade may also prove to be a factor. There has historically been an inverse relationship between gold and trade. When trade levels are rising quickly, inflation tends to fall, equities tend to rise, led by export-led companies, and GDP tends to rise. The Dollar will also show strength because of its importance in global trade. If economic growth weakens, and trade declines, this would help to support the gold market in the remainder of 2024.
Supply factors also need to be considered. While capital investment from gold miners remains low, mined production has risen as a higher gold price has created greater incentives. There are also improvements in recycling, as much as 30% of the supply in some economies. This creates downward pressure for gold.
There are forces pulling in both directions. Physical demand may dip and there is likely to be some improvement in geopolitical factors as the world gets through its election cycle. This, alongside positive real rates may act to constrain the gold market. That said, it remains a compelling portfolio diversifier and has been strengthening over time. Any weakness may represent an opportunity.
Investing in Gold with ETCs
There are many ways to invest in gold beyond holding physical forms such as coins, jewellery and bullion. These includes Exchange Traded Commodities (ETCs) which tend to offer a blend of liquidity, flexibility and cost-efficiency.
The AMUNDI PHYSICAL GOLD ETC offers investors exposure to the movements of the gold spot price. It is 100% backed by post-2019 bullion, ensuring it is compliant with the LBMA’s enhanced responsible sourcing standards published in 2019. With a TER of 0.12%4 it is one of the lowest-cost ETCs5 in Europe.
1.Source: Amundi ETF Research & Strategy. Bloomberg. As of 20 May 2024
2.Source: https://fred.stlouisfed.org/series/GFDEGDQ188S
3.Source: Metals Focus, World Gold Council
4.The TER is a measure that compares the ongoing costs (all taxes included) charged to an ETC against the value of that ETC’s assets. For more information about all the costs of investing in the ETC, please refer to its Key Information Document (KID). Transaction cost and commissions may occur when trading ETCs.
5.As of January 2024/Comparison with Europe domiciled ETCs
Main Risks
- The ETC offers no capital protection. Prospective investors should be aware that they may lose the value of their entire investment or part of it, as the case may be.
- Precious metal prices are generally more volatile than prices of other asset classes, and the secondary market price of the ETC securities may demonstrate similar volatility.
- The market price of the ETC will be affected by a number of factors such as: movements in the price of the gold, market perception, the creditworthiness of certain transaction parties and the liquidity of the ETC in the secondary market. The value of the gold comprising the Metal Entitlement by reference to the price of the gold (and, by extension, the market price of the ETC) can go down as well as up and the performance of the gold in any future period may not mirror its past performance.
- The ETC are limited recourse obligation of the Issuer (i.e. investors shall have recourse only to the Metal Entitlement in respect of the ETC). In the event that the Metal Entitlement of the ETC is insufficient to pay the minimum redemption amount to all investors on such early or final redemption, such investors may not receive payment of the minimum redemption amount of the ETC in full and may receive substantially less.
- Investors are exposed to the creditworthiness of the Issuer, Metal counterparty, Custodian and the Authorized Participants.
KNOWING YOUR RISK
It is important for potential investors to evaluate the risks described below and in the fund’s Key Information Document (“KID”) and prospectus available on our websites www.amundietf.com.
CREDIT WORTHINESS – The investors are exposed to the creditworthiness of the Issuer.
IMPORTANT INFORMATION
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AMUNDI PHYSICAL GOLD ETC (the “ETC”) is a series of debt securities governed by Irish Law and issued by Amundi Physical Metals plc, a dedicated Irish vehicle (the “Issuer”). The Base Prospectus, and supplement to the Base Prospectus, of the ETC has been approved by the Central Bank of Ireland (the “Central Bank”), as competent authority under the Prospectus Directive. Pursuant to the Directive Prospective Regulation, the ETC is described in a Key Information Document (KID), final terms and Base Prospectus (hereafter the “Legal Documentation”). The ETC KID must be made available to potential subscribers prior to subscription. Before any subscriptions, the potential investor must read the Legal Documentation. The Legal Documentation can be obtained from Amundi on request. The distribution of this document and the offering or sale of the ETC Securities in certain jurisdictions may be restricted by law. For a description of certain restrictions on the distribution of this document, please refer to the Base Prospectus. The investors are exposed to the creditworthiness of the Issuer.
The Authorized Participants are HSBC Bank plc, Flow Traders, Jane Street & Optiver VOF, BNP Paribas Arbitrage SNC.
The amount that is reasonable to invest in the ETC will depend on the personal circumstances of each investor. To determine this amount, investors should take into account their financial situation, personal assets, and current and future requirements, as well as considering their willingness to accept risks or conversely their preference to invest cautiously. Investors are also strongly recommended to sufficiently diversify their investments so as to avoid being exposed solely to the risks of this ETC. Investors should therefore seek advice in this regard from their usual advisors (legal, tax, financial and/or accounting) before purchasing any ETC. The information contained in this website is intended solely as non-binding information for investors. It does not constitute an offer or a solicitation to buy or sell the securities of the ETC. None of the statements contained in this document should be construed as a general recommendation. Any trading or investment decisions an investor takes are in reliance on its own analysis and judgment and/or that of its advisers and not in reliance on this document. Investment in the ETC mentioned in this document may not be suitable for all investors. It is the responsibility of each potential investor to ensure that his/her investment is compliant with the laws of the jurisdiction he/she depends on and to check if this investment is suiting his/her investment objectives or patrimony situation.
The registration, distribution and the offering or sale of the ETC Securities in certain jurisdictions may be restricted by law. For a description of certain restrictions on offers and sales of ETC Securities and on the distribution, please refer to the Base Prospectus. The source of the data contained in this document is Amundi Asset Management unless otherwise stated.
Policy regarding portfolio transparency and warning on secondary market. The policy regarding portfolio transparency and information on the ETC assets are available on amundietf.com. Securities of the ETC purchased on the secondary market cannot usually be sold directly back to the ETC. Investors must buy and sell securities of the ETC on a secondary market with the assistance of an intermediary (e.g. a stockbroker) and may incur fees for doing so. Investors may pay more than the current price when buying securities and may receive less than the current price when selling them. The price of the investments may go up or down and the investor may not get back the amount invested.
The price of the investments may go up or down and the investor may not get back the amount invested. Please note that past performance in no way serves as either an indication of future results or a guarantee of future performances. Any gains or losses are exclusive of the expenses, fees and charges that may be incurred by the investor (i.e. taxes, broker fees or other charges levied by the relevant financial intermediary, etc.).
Securities of the ETC purchased on the secondary market cannot usually be sold directly back to the ETC. Investors must buy and sell securities of the ETC on a secondary market with the assistance of an intermediary (e.g. a stockbroker) and may incur fees for doing so. Investors may pay more than the current price when buying securities and may receive less than the current price when selling them.
The source of the data contained in this document is Amundi Asset Management unless otherwise stated. The exactness, exhaustiveness, or relevance of the information, the prevision and analysis provided are not guaranteed. It is based on sources considered as reliable and may change without prior notice. It is inevitably partial, provided based on market data stated at a particular moment and is subject to change.
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FRANCE
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UNITED KINGDOM
Marketing Communication. For Professional Clients only. In the United Kingdom (the “UK”), this marketing communication is being issued by Amundi (UK) Limited (“Amundi UK”), 77 Coleman Street, London EC2R 5BJ, UK. Amundi UK is authorised and regulated by the Financial Conduct Authority (“FCA”) and entered on the FCA’s Financial Services Register under number 114503. This may be checked at https://register.fca.org.uk/ and further information of its authorisation is available on request. This marketing communication is approved by Amundi UK for use with Professional Clients (as defined in the FCA’s Handbook of Rules and Guidance (the “FCA Handbook”) and shall not be distributed to the public. Past performance is not a guarantee or indication of future results.
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Austria
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SWITZERLAND
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Amundi Asset Management
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