The Long Gold Trade Still Has A Lot Of Positive Structural Things Going For It
Gold alone at the top
Gold, the only asset class with a Sharpe of >2 YTD. NASDAQ? A paltry 0.4 and does not even make it to the list. However, current gold rally barely registers when compared to the largest degree of spot up/vol up moves in gold historically. The long gold trade still has a lot of positive structural things going for it.
Source: GS
Gold - what if?
UBS playing with numbers: "...if all central banks especially in emerging markets had a minimum of 10% of their reserves in gold (compared to the Fed and the Euro area who have 76% and 57% of their reserves in gold respectively), the increase in gold demand would be 75% of global supply".
Structural Gold support
Central bank diversification. We can see that central bank buying of gold has accelerated since 2022.
Source: UBS
Allocations to gold
Still relatively depressed levels when zooming out.
Source: UBS
Gold positioning
Gold CFTC net buy side positioning has shot up, but we are still not at all time highs.
Source: UBS
Xi's gold long...
...is very long and looking strong. TS Lombard on why China is loading up on gold:
1. A strong political imperative to build financial self-reliance, which in practice means conversion of USD and EUR assets into gold (among other investments).
2. Bottom-up desire by Chinese households to find a store of value away from real estate, equities and other RMB denominated assets.
Source: TS Lombard
but the PBoC gold has room to grow
Interesting chart to say the least...
Source: TS Lombard
China beating India
When it comes to gold consumption..and the lead is extending.
Source: TS Lombard
Gold price still 40% below previous peak in real terms
Gold is still 40% below its previous peak in inflation adjusted terms and is inexpensive relative to other real assets such as equities.
Source: UBS
Source: UBS
Got GDX?
Gold stocks have abnormally lagged the gold price -normally gold stocks have a beta of 2X to the gold price. This implies gold miners could be up 45% from current prices (UBS).
Source: Refinitiv
Gold volatility
Gold trades with an "upside skew", i.e gold up means gold volatility moves higher. We have the GVZ move higher lately, but looking at the GLD call/put open interest, we see there is little excitement, still...
Source: Refinitiv
Source: UBS
Physical is physical
Interesting to see the crowd chasing gold while "abandoning" BTC.
Source: JPM
See TME's daily newsletter email above. For the 24/7 market intelligence feed and thematic trading emails, sign up for ZH premium here.
