Gold punches through highs again
Gold finished January on an all-time-high of US$2,812, up 8% on the month, adding another positive start to its strong seasonal record . All-time-highs were logged across the board in major currencies (Table 1).
According to our Gold Return Attribution Model (GRAM), almost all drivers contributed positively including a large rise in the Geopolitical Risk index (GPR), with the only major drag coming from the lagged momentum effect of a strong US dollar in December (Chart 1).
Global gold ETFs secured a US$2.6bn (30t) gain in AUM, driven almost exclusively by strong inflows into European gold ETFs (+US$3.4bn, 39t) – likely aided by a European Central Bank (ECB) cut that took bund yields down quite dramatically over the course of the month. US funds lost US$500mn (6t), Asian funds pared US$320mn (4t) while other ETFs managed small inflows totalling US$51mn (1t).
COMEX managed money net longs added US$64bn (150t) to positions with a large increase in longs and a small cut in shorts.
Snakes and ladders
• China saw evidence of strong start to an auspicious ‘year of the snake’ for gold. Historically, February is positively correlated to January performance, so augurs well
• German elections might be flying under the radar for many given the noise around US tariffs, but the elections could trigger a much more positive growth outlook
• This in turn could support the euro vs. the US dollar in the process. A weaker US dollar is not a consensus view, but unforeseen pressure on it could herald further support for gold.
China’s New Year of the snake kicks off in style It’s Yisi’s year of the snake in 2025, which occurs every 60 years and promises to be an auspicious one. Seasonal strength in local prices was evident in January with an average premium of US$6/oz recorded following several months of discounts
Up the economic ladder
While focus is currently on the impact of President Trump’s first few weeks in office, with tariffs and bluster rocking markets, elections in Germany on 23 February could have far reaching implications too.
Surveys show that the issue German voters care more about than any other, is economic growth (Chart 3, p3).
This means that whoever wins will have to deliver. And promises from all candidate parties have been emphatic about delivering on growth.2
Equity markets appear to have sniffed out the fruits of a change in administration, with the DAX outperforming most major indices over the past two months. But next to be impacted may be bund yields. Despite a softer ECB likely lowering short-end rates, stimulus could steepen the curve and pressure longer-term yields higher reducing the gap between bunds and US Treasuries. This spread tends to lead changes in the US dollar index
So euro strength could add further pressure to an overvalued US dollar, although it might take a bit of time to materialise and will likely not be dramatic.3 With the Bank of
Japan seeing domestic demand matching targets and further rate hikes tabled this year, we believe a slightly anti- consensus call on the dollar shifting down is a possibility.
And gold’s relationship to the US dollar has been consistently negative over the last few decades, more so than bond yields. Although it’s not been key to gold’s price performance of late, we believe a softer trend should provide a gentle tailwind for gold (Chart 5).
In summary
Markets are currently fixated on the fallout of broad tariffs that the Trump administration has levied. And the knee-jerk reaction from currencies has been a strengthening of the US dollar (DXY). But elections in Germany might be a trigger for a sustained strengthening of the euro vs. the US dollar via a contracting Treasury/bund spread – even after an unwind of the strength from the strong rally since November. Likewise, weakness in the Japanese yen appears less likely. All else being equal, US exceptionalism might find a challenge from these two corners, pressuring the US dollar lower – which given the consistent relationship with gold – can add further support to gold’s incumbent strength.
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