Gold: What Can The Massive Capital Outflows Tell Us?

The breakout in the price of gold that occurred in mid-2019, and its subsequent strong rally, has come under considerable pressure, with capital outflows from gold ETFs recently reaching historic highs (chart below).

It is noteworthy that the historic presumptions about what moves gold prices (i.e., monetary expansion, inflation etc.) have not driven prices in the 21st century. Otherwise, the great monetary expansion to combat the 2008 crisis, and the ongoing central bank intervention since, would have produced much higher prices than were seen.

Rather, it is the perception of risk, economic and geopolitical, that appears to bear the highest correlation to the price of gold. The recent election of Joe Biden, and the news of a host of vaccines against the Coronavirus, has lessened concerns and produced capital outflows.

We believe the fragility of the global economy and geopolitics will eventually reassert themselves, suggesting that higher prices in the long-term can be expected.

If you enjoyed this post, you’ll find the Global Investment Letter of value. We invite you to visit our website, which includes complimentary sample issues. www.globalinvestmentletter.com