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Gold to Shine Again

By Chen Guangzhi, Head of Research, KGI Securities (Singapore)

Gold to Shine Again​

Gold has remained range-bound between US$1,600/oz+ to US$2,000/oz during the COVID-19 pandemic. However, there has been a V-shaped rebound since 4Q22 that persists till now, with the recent surge fuelled by the banking crisis in the US and Europe. Gold has broken out of US$2,000/oz for the third time since the pandemic outbreak.

Figure 1: Gold Performance

Bloomberg Code Name Closing Price 1-Month Return 3-Month Return 1-Year Total Return 3-Year Total Return 5-Year Total Return YTD Return
XAU Gold Spot $/Oz 2022.58 9.51% 10.35% 5.13% 24.76% 52.44% 10.87%

Source: Bloomberg, KGI Research

Key Factors Impacting Gold

Several positive factors are supporting gold’s performance. Firstly, gold prices are generally inversely correlated to the US dollar. The US dollar peaked in 3Q22 along with inflation topping out, and the subsequent downswing of the US dollar has supported gold’s rebound over the past 6 months.

Figure 2: Gold and US Dollar Index

Figure 2: Gold and US Dollar Index​
Source: Bloomberg, KGI Research
Secondly, gold is sensitive to changes in interest rates. Gold itself does not generate any yields but only price appreciation and depreciation. Specifically, gold prices are also inversely correlated to real yields, which factor in the nominal interest rate and inflation rate.

Figure 3: Gold and UST 10-year Real Yield

Figure 3: Gold and UST 10-year Real Yield​
Source: Bloomberg, KGI Research

Thirdly, geopolitical tensions impact investors’ sentiment towards safe-haven assets. Gold’s last breakout of US$2,000/oz was in March 2022 when Russia unexpectedly invaded Ukraine, and fears of World War III drove funds to flock to gold.

Lastly, a persistent increase in the money supply inflates gold prices in the long term. Gold, once used as a currency, has now become a commodity. The limited reserves of nonrenewable gold resources make gold a good anchor to fiat money. Gold’s rally from March 2020 to July 2020 coincided with the Fed’s unprecedented US$3 trillion liquidity injection, bringing gold to reach an all-time high of around US$2,070/oz.

Figure 4: Gold and Fed Fund Rate, Gold Return During QE period

Figure 4: Gold and Fed Fund Rate, Gold Return During QE period​
Source: Bloomberg, KGI Research

Figure 5: Gold and Central Banks’ Total Assets

Figure 5: Gold and Central Banks’ Total Assets​
Central banks: FED, ECB, PBOC, BOJ, SNB Source: Bloomberg, KGI Research


Gold is expected to reach a new all-time high in 2023, supported by the abovementioned factors. Inflation measures such as CPI, PPI, and PCE in the US are on a downward trajectory based on the last two quarters’ figures. Meanwhile, the banking crisis in March 2023 is attributed to the steep rate hikes in 2022. The Fed is expected to prioritise financial stability over inflation, and the market anticipates the rate hike cycle to end in 1H23, followed by an ensuing rate cut in 2H23. Falling real yields provide strong support for gold’s price.


The odds of escalating geopolitical tensions are high. The Russia-Ukraine military conflict has yet to be resolved, and Finland’s recent entry into NATO has raised concerns about potential military action by Russia over Finland’s borders, similar to what happened in Ukraine before the invasion. The biggest risk remains the tensions between China and the US. The confrontation between the world’s largest and second-largest powers is expected to last at least for the next decade. Both the US and Taiwan will have presidential elections in 2024, bringing uncertainties. Consequently, the demand for safehaven assets, especially gold, is expected to intensify.

Expansionary monetary policies are expected during a recession. The US has a more than 60% probability of entering a recession in the near term, and the US will reach its debt ceiling in June, with raising the debt ceiling and ensuing increase in the deficit being the likely resolution. This will result in a new round of quantitative easing. China has also adopted loosening monetary policies since the end of zero-COVID lockdowns to resume economic growth. In the foreseeable future, fiat money will continue to flood the world, leading to higher gold prices.

Figure 6: Gold Returns During US Recessions

Begin End Gold S&P 500
Feb-20 Apr-20 7.0% -10.4%
Nov-07 Jun-09 18.2% -37.9%
Mar-01 Nov-01 3.3% -8.2%
Jul-90 Mar-91 -0.5% 4.4%
Jul-81 Nov-82 3.3% 6.8%
Jan-80 Jul-80 12.4% 15.6%
Oct-73 Apr-75 77.1% -23.7%
Nov-69 Nov-70 6.6% -7.0%
Mar-60 Feb-61 -0.1% 14.6%
Jul-57 Apr-58 0.4% -9.3%
Jun-53 May-54 0.6% 20.5%
Average Return 11.7% -3.2%

Source: Bloomberg, KGI Research


CHEN GUANGZHI is the head of research at KGI Securities (Singapore). He has more than 7 years of experience in equity research with coverage of the US, China, Hong Kong, and Singapore markets. He graduated from Singapore Management University with a master’s degree in applied finance and from South China University of Technology with a bachelor’s degree in e-commerce. Meanwhile, he is a CFA charterholder.