In May 2024, the gold market continued its upward trajectory, achieving a modest 2% increase and reaching new highs amid various economic pressures and market activities. This marked the third consecutive monthly gain for gold, which closed at $2,348 per ounce by the end of May, despite experiencing a peak mid-month at $2,427 per ounce before a slight pullback due to profit-taking activities.
According to the World Gold Council’s Gold ETF Commentary, one of the key drivers behind the sustained gold price rise was the significant inflow into gold Exchange-Traded Funds (ETFs), which saw their first positive net flow since May 2023. Global gold ETFs attracted $524 million in new investments, increasing their total assets under management (AUM) by 2% to $234 billion, the highest level since April 2022. This inflow helped lift global gold ETF holdings to 3,088 tonnes, although they remain 8.2% below the 2023 average.
The inflow into gold ETFs was particularly strong in Europe and Asia. European funds reported their first positive flow in a year, while Asian funds continued their streak with a 15th consecutive month of inflows. In contrast, North American funds experienced slight outflows, reflecting a regional divergence in investor sentiment.
Trading volumes remain elevated
The average trading volume across global gold markets stood at $254 billion per day in May, 11% lower than in April. However, overall volumes across markets remained well above the 2023 average of $163 billion per day. Trading activities at key exchanges fell by 17%, while volumes at the COMEX remained stable. A more significant drop at the Shanghai Futures Exchange (-45%) and Shanghai Gold Exchange (-35%) were the main contributors. Gold ETF trading volumes also fell across major markets, averaging a 39% month-on-month decline globally. Based on the most recent information, OTC physical gold trading activities held up, only shedding 5% month-on-month.
Total net longs at the COMEX climbed to 768 tonnes at the end of May, 7% higher month-on-month. Money manager net longs rose to 557 tonnes, a 38-tonne month-on-month increase and the highest month-end level since June 2020. They are now 78% above the 2023 average of 312 tonnes.
The Gold Return Attribution Model (GRAM) from the World Gold Council highlighted that no single factor dominated the gold price movement in May. Instead, a combination of momentum, a weaker US dollar, and other unexplained factors played a role. Notably, the model’s unexplained component, which includes central bank buying, was the largest contributor to gold’s performance during the month.
Trends and outlook
US growth and inflation data continue to set the tone for currency markets and most other asset classes. Until recently, the dollar looked remarkably strong as US growth remained robust, and the macro market narrative shifted from ‘when’ to ‘whether’ the Fed will ease this year.
The US dollar rally, however, went into reverse in May—falling for the first time in 2024—as inflation eased, giving the Fed more room to cut interest rates. “As we look forward, the dollar bull narrative could be running short of arguments for the next leg higher, which, in turn, could be positive for gold,” the report read.
The World Gold Council report stated that a ‘no landing’ scenario has been on the rise. “Firstly, to that end, as expectations reset higher, it will become progressively more challenging for the economy to deliver the upside surprises needed to extend the rise in US yields and the dollar,” it stated.
Secondly, a soft landing continues to be the prevailing scenario among investors, especially after the recent softer data. As a result, the Council expects the US dollar to grow increasingly sensitive to weaker US data, particularly as it remains close to the top end of its 52-week range. “In addition, the ongoing improvement in global growth outside of the US could temper dollar performance as the currency tends to appreciate during times of risk and vice versa,” the report read. For example, recent data showed that the eurozone grew by 0.3% in the first quarter of this year, following five quarters of stagnant or negative growth. More globally, fears of a recession have also receded.
Finally, looking at the dollar (measured by the DXY Index) through a technical lens shows it has been in a short-term uptrend within a broader sideways range since 2022. Crucially, this recent uptrend shows signs of weakening and potentially reversing. The spotlight is now on key support levels, including its 200-day average and uptrend line from December 2023. And while gold has largely brushed off the stronger dollar recently as Eastern buyers have shifted their behaviour (buyers in emerging markets appear to be less attentive to the US dollar or Western monetary policy expectations), a weaker dollar in the future could bring back Western investors who are waiting for a trigger.
Historical implications for gold
The period following a dollar peak has historically been good for gold. “We assessed eight periods in history where the dollar experienced a prolonged contraction,” the report noted. The average duration of these pullbacks was roughly 22 months, during which the US dollar fell 23%, and gold rallied 52%, on average.
Taking a deeper dive, when the dollar has fallen by at least 10% over six months since 1971, the average return for gold during these periods was +14%. Additionally, gold returns were positive 87% of the time.