Transcription
The realization that debt levels not only in the US but around the world are just mammoth. There's no viable alternative to the dollar and the dollar-based assets other than gold.
>> Why have Asian investors been stickier to sell?
>> Right now you're seeing an amplified impact from the US investor, but you're also still seeing the price holding up. You know, this is a good environment for the gold market and you're still seeing interest in Asia.
>> Special coverage from the floor of the Royal Symposium is brought to you by Palace of Gold. I'm pleased to welcome to the show Joe Capatonyi. He's the senior market strategist for the Americas at the World Gold Council and uh Joe's going to be going over what is happening right now with precious metals and ultimately whether or not the end of the momentum uh is behind us. Welcome back to the show or welcome to the show Joe. I've had uh David Tate, CEO on and was looking forward to having you on. So, welcome to the show.
>> David, it's always a pleasure to be here. I think we've talked in other capacities, but I'm really excited to be on your show with you today. uh the World Gold Council and it authority on uh all things to do with gold research. Uh we'll also be talking about the ETF flows uh that the World Gold Council tracks. Let's start with the broad picture overview of what's going on right now with gold market tracing around $4,000 as we speak today on the 21st of July. $4,000.88. It's been building a base around $4,000. Um, why do you think gold has been down consistently ever since the beginning of February after it corrected from $5,500 at its peak?
>> Great place to start and the right question to ask. I think first and foremost what we saw in January and I think it's pretty pretty well talked about in the market today was a bit of a stretch for the gold price. If we were to look at the $5,400 price that we had seen, uh that would have put us just about 162% of a price appreciation over the course of about 18 months.
While we think gold's role is significant and important in portfolio and in investment and in central banks, that was a fast move for the gold market considering historical movements since it had come off the fix in 1971. So we think it was stretched. We think there was a lot of political geopolitical rhetoric and motivating factors pushing momentum and and speculation in the gold price to that level. And I think we've settled back down at a much more reasonable level uh coming off of that January high. And actually, as we've seen things develop over the course of this year, we've seen some conditions that have slowed down that speed with which gold accumulation, investment uptake have been pushing the price higher. Specifically, the conflict we're seeing in the Middle East, US and Iran, that's continuing to persist and it's it's creating an environment of inflation, which we thought we were moving past. And now that inflationary pressure is in place, Western markets are looking at how they can curtail that, handle that. You know, you're looking at a go, you know, an oil price that's very significant at the pump, not only at the barrel, but at the pump. And actually, that's where we are today, which is rates holding, if not looking likely to be raised.
>> And that's slowing down the opportunity cost on the short term for gold. Surely you've been asked this several times throughout the uh first half of this year is which is why gold has not been moving up on higher geopolitical tensions. After the war in in Iran broke out, gold went down, not up.
>> Yeah. You know, David, one of the things I've learned in the 10 years that I've been with the council is that people like easy, simple things to remember about gold. And sometimes we need to ask them to be a little bit more detailed when they think about what's going on. You hear people go, "Oh, gold's a safe haven. Oh, gold's going to go up because there's a war. What they need to understand are the consequences of a conflict like you're seeing in the Middle East, you need to understand the repercussions of that conflict. So leading to the war, leading to the invasion, leading to the conflict, you had a condition of gold prices seeing appreciating value. But once the markets can determine the consequences of the conflict, higher oil prices, a shutdown of a third of the oil reserves and and supply for the world, emerging market impact big time, then it starts to basically respond to the conditions that are post the conflict.
>> Yeah. And some of the >> conflict persisting.
>> You talked about higher interest rates, higher uh long end of the curve. Uh can you just explain conceptually why higher interest rates uh present a headwind to gold? In other words, why uh Sure. bonds present this kind of competition to the gold?
>> It's a it's a it's a simple it's a simple case of higher yielding assets that can actually kick a cash flow or attract the dollars that would normally be looking at gold away from the gold market at this at this point. Simply put, think about a dollar deposit in a money market fund. If it's holding a higher interest rate on the short term, looking at a dollar, looking at gold, you can simply say, I'm going to be in a liquid end of a curve. I'm going to have a higher yielding asset that's paying a coupon. I might just hold off making an investment in gold. I might look at the alternative. And that's what basically plays out. And that is a condition that exists with western investors predominantly less so with eastern investors but definitely western investors. And we've been watching the markets being pushed and and pulled by western and eastern investors. The western investors taken some money off the table looked at alternative investments because rates are higher. Real rates remain high. Those real rates are attractive on the short term to those western investors. And with that money coming out, we're not going into gold. You actually see less of an appreciation in the price. Little bit of selling pressure, but offset by central banks that continue to buy and their conditions of buying are different to what an investor would be looking at. And also Eastern investors staying invested in the game. And actually, interestingly enough, you talk about ETF flows, we're seeing European investors coming back to the game a bit more. Last year they were a bit quiet on the ETF flow side, but this year we're starting to see them come back into the game.
>> Yeah. So on ETFs, here's a chart from the World Gold Council. Global investors further trimmed their gold ETF holdings in June. Physically backed gold ETF saw outflows of US dollar $8.9 billion in the month. All regions experienced outflows with North America losing the most. Do you think ETFs are a leading or coincident indicator to the uh price of gold?
>> This is really this a this is a really good question and actually a really important question to get right.
>> Yeah.
>> In terms of giving people information, the ETF market globally is only about 6 to 7% of the investment market globally, which is not even the entirety of the gold market. So it's a good indication. It's a nice easy daily information sound bite that you can use to get a sentiment read from the investment community. But what's important to understand is in first quarter while we had ETF flows in and out and moving quite a bit. You can see all the way through half one what we've seen in terms of the flows. We had bars and coins that were still being accumulated. So I think it's a good information point for people to pay attention to. It is not the only thing to keep a close watch on. You have to keep it into context. Remember these are easy to use instruments. Many of them get used for speculative and tactical trading. So sometimes they might be showing shorter behavioral patterns out of people who are trading on that short momentum. And actually it's a good indication but it's not the complete picture. You have to watch all forms of investment, central bank flows, what's happening in jewelry, and even keeping a close watch on that 10% that still still persists in the world of demand for gold in the form of technology.
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Have you seen scenarios in which ETF uh demand has um uh picked up where the gold price fell? In other words, investors started buying on the dip and that actually presents >> you know I'm sorry to jump in and cut you off in your question but like literally we're talking about that today.
>> Yeah.
>> You know the investment flows as we've seen this persistence around 4,000 in terms of the price level. You're starting to see this turn. The US flows are actually showing positive. The actual Asian flows are holding and actually like I said the European flows are actually interesting for sure. And actually, it's being featured in in major publications right now saying, "Hey, look, this is a good time to buy gold." And guess why? Because the big strategic message and story and valuation expectation for gold remains in place. What we're dealing with today are short-term conditions that are actually using or allowing investors to move around the short end of the investment profile. What you're thinking about though longer term is what are debt levels looking like at the sovereign level? What's the future of fiat currencies? What are we really looking at in terms of overall risk diversification in portfolios? That's where I think we still see, you know, some pullback in ETF flows, but not people selling out of their positions of gold. You have to remember we're still a very large portion of investment staying in gold. We might not be seeing the flows we've seen in the past over the last 18 months, but we're still very healthy in terms of the overall level of involvement.
>> What I've noticed looking at this chart is that over the last 2 years, especially whenever there's been a bare market where downturn in the price of gold, outflows in North America have typically exceeded outflows in Asia. Why is that? Why have Asian investors been stickier to sell?
Well, it talks a little bit to what I had indicated earlier in my answer, which is that I think that the investor in Asia is actually looking at a diversification play that has conditions that are linked to their local economy >> and their broader portfolio performance. Whereas the US investor where you're seeing these outflows are likely fixating on rates from the US and the dollar. So, you have two different motivating conditions. And this is actually probably the coolest feature of the gold market. It's global market and anybody that sits back and says I can't, you know, I just want to watch what happens in the US and what happens with rates needs to make sure that they pay close attention to those other categories we talked about because those are the things that are going to drive the price with the US market as well. Like right now you're seeing an amplified impact from the US investor, but you're also still seeing the price holding up. You know, this is a good environment for the gold market and you're still seeing interest in Asia. You know, we had record flows in ETFs and record flows in investments in China, India, and Japan last year. And look where we are today. This could be something we continue to see over the course of 2026.
>> Okay, it says here in the article that um looking ahead, we could see regional gold ETFs stabilized. The macro consensus scenario in our 2026 mid-year gold outlook suggests relatively stable gold performance and set the second half of 2026 with potential catalyst possibly brewing a breakout in other scenarios. Tell us about some of the assumptions uh in your midyear gold outlook here.
>> We think the rate environment is going to dominate the news. The rate environment for the western markets in particular the US is going to dominate the news and that's going to keep many of the investment dollars in the west in the US thinking and looking and seeing where we're going to go. You remember we have a new Fed chairman. He's got a particularly strong view on how he wants to run the Fed. I think we're all sitting tight. This month in particular has been very interesting. We've had notes from the June report where most governors are basically saying, "Yeah, we are in agreement. Let's hold rates where we are." We had the Beige book just come out and give a an indication that the economy, the the environment for inflation, the jobs outlook are are all okay, but not fantastic. They're not moving in a direction where you can continue to see a rate environment cut. And then you've also got an FOMC meeting at the end of this month. But what I think is really good and important for us to keep a close watch on is what we see coming out of the Jackson Hall reports in September. That meeting will be an interesting one because that's where we're meant to be getting a bigger picture longer term from the Fed around what the direction's going to look like. So I think right now this whole holding where we are trending where we are is basically a real rates discussion again it'll hold us around that 4,000 level. But if we see things that develop, whether it's around geopolitical risks, clarity from the Fed, conditions that are actually favorable for the gold market, then they could very quickly see us getting back on the track of being back to where we were, looking moving in towards this 5,000 level.
>> It's interesting how um a lot of people in the gold community have for a long time believed that gold is an inflation hedge. And right now we're seeing an environment where if inflation goes up, rates could go up, which could put further pressure on gold, which is basically doing the exact opposite of hedging against inflation. So what would you say to people who are maintaining a gold position uh based on the narrative that they believe inflation is going to stay sticky and gold is going to go up because of that?
Well, I think I think what people need to understand about the role that gold can play in an inflationary environment is that actually that inflationary environment needs to be eroding the purchasing power of the fiat currency in question. And actually it's when we see transitory or movements in inflation rates that are actually um giving reason and cause for the monetary policy from developed central banks to slow down their moves on rates is when I think we find the gold market not necessarily having as much appeal and not hedging as well. In addition, I think that it depends on exactly where we are in terms of a percentage of inflation rate. So a higher inflation rate might be something that's weaker for gold. I think as we get closer to more manageable levels of inflation that the Fed has expected, then you start to see the opportunity cost away from gold become less appealing. So I think what you're looking at is this transitory period trying to figure out exactly what we're really dealing with as well as where the rates are going to be settling in and that's what we're looking to get clarity around >> and actually how the Fed's going to deal with it. So I think that's why people need to understand gold's going to hold its value. It's going to continue to be a liquid instrument for you, >> but right now you might be seeing in real rate terms more appeal away from us as rates remain high.
>> So this chart in the gold outlook highlights three distinct scenarios here. We talked about the consensus, we talked about the price consolidation. What about this blue area here where we see a price uptrend? What conditions do we need to see for gold to actually go higher into the rest of the year?
>> I I I think it's interesting. I think it's actually um um an interesting scenario where where risk and uncertainty but also certain conditions of economic outlook for the US market or for global markets persist and that gives us a good condition for for um the overall environment to see rates coming down. So, I think right now what we're looking at and what we're seeing is probably less of a likelihood of that upward trend, that very aggressive level to get to 5,000. But we need to hear more from the Fed. We need to see more around how things get settled down in the Middle East because that's been this kind of condition that's keeping us in this persistent discussion around inflation. But >> those that environment isn't >> inconceivable. What I'd say is it's looking harder as we get closer to the end of the year to see the conditions developing. And as long as the conflict in the Middle East continues to play out, it's going to see a little bit harder for us to see that scenario playing out more likely. That's an environment that's that's that's um >> um exciting to hear and think about, but I think we still have a lot on our plate that's still going to hold us um right now where we are kind of hovering around the 4,000 level.
Based on your experiences, you're you've worked many years in the gold sector and in the finance space. What have you seen that has motivated investors to be very excited about gold or perhaps very bearish one way or another? In other words, the drivers that really move investment demand one way or another.
Yeah, it's a it's a great question. And I think what's actually been the most interesting and probably exciting development, although I say it with a bit of concern, >> Mhm. >> is the ability for developed nations to maintain these sustained levels of debt that they have and actually a calm realization by the investment community to say, I see what is potentially developing. I'm seeing the challenges of wrestling down these debt levels and I'm seeing a value in real assets and real assets in a portfolio which is why I think we continue to hear a strategic case being discussed with investments and investors are talking about how do I diversify so I have liquid instruments that can actually help me out when I need them most. That was a bit of what we saw at the beginning of the year when margin calls were being made. people were looking to liquidate against private credit and private equity portfolios which you're you're in those for quite some time. Um, but I think it's that condition of understanding and actually it's it's actually something structurally I think that shifted is the realization that debt levels not only in the US but around the world are just mammoth. And I think that they have no clear answer on how they're going to be dealt with unless you can look at how you can manage a free fiat currency. And I'd say to you that right now that's probably the biggest thing that's been interesting and I think it continues to be the discussion topic around what can I hold that will hold its value when we've got these debt levels that are eroding the value of fiat currency.
>> It's very interesting to I I've got a few questions on this chart. This is a long-term chart of chart of gold and I'm just zooming in from uh 2016 to uh now. Let's zoom in a bit further. Would it be fair to say, Joe, given that uh gold has abruptly retraced from 5 uh 5,300 uh briefly touched 5,500, but basically gold retraced abruptly at the onset of the Iran war um actually even before then uh that perhaps if the conflict in the Middle East didn't start to escalate uh where it became apparent that there was going to be a war that gold could have gone up even more. Could could we have made that assumption?
>> The fever pitch of political rhetoric, geopolitical tension leading up to that 54 5500 level that you're pointing to >> was unprecedented. I think we were talking about invading Greenland. We were talking about issues with with Cuba. We were talking about Venezuela. We were talking about Iran. We were talking about um conflict with a Fed chairman. There wasn't an announcement on it. So I think the retracement started when there was clarity around first where we were going to go from the Fed who was going to be announced or announcement then it led into a bit more of a correction against the geopolitical tensions calming a bit and I think that ultimately when we started to see the conflict come into play that was when you saw the gold market recover a bit more but then it came back off when the consequences of the conflicts were understood. So I think that we were really dealing with a geopolitical fever pitch as I put it that really drove speculative flows into the gold market and prices high up which is why I think it was a bit stretched.
>> Yeah. Is it um a characteristic of the uh gold bullion to remain uh in a price consolidation for years after a bull market has subsided. Case in point, the 80s to the 2000s. Basically a two decade consolidation. And second case in point following 2012, the the consolidation between 2012 to 2019 right before co >> is that a characteristic of the metal?
Yeah, >> it has been. I'm not entirely sure that this is the condition that we're going to be seeing. And I again I would amplify two things that that I one have talked about and the other I want to make sure I I I give you and your audience a little bit of color on. Uh the first is the the condition of debt levels. I I think we're at a level that we've never seen before. So figuring out how that is going to be dealt with is just not done. And I think that that's actually different to what we've seen in the past. Second, I think when you think about reserve assets being held by global central banks, whether it's developed, developing or emerging market central banks, you're talking about limited selection, limited choice, and a shift that I think is actually been material. And it's been a near 15-year run on this since the global financial crisis that we've been seeing central banks adding to their reserves. There's no viable alternative to the dollar and the dollar-based assets that's large enough, liquid enough, and confidence in that asset that can actually serve the needs to complement a dollar reserve asset other than gold. Gold's the asset of choice. And I think that those conditions and those buying behaviors from central banks will continue to help bring us probably to a condition that won't be flatlining for 10 and 20 years. It'll actually continue to be something we see where the price is appreciating over the next 5 years.
>> Final question. Do you expect or can we anticipate that the demographics of investors holding gold can change the following decades? And if so, how?
You know this is a really good question David and I actually think it's happening as we speak. Mhm. >> So one of the big things that we've seen over the last 3 years has been the development of financial instruments giving representation and ownership of gold in markets like China which have historically again this is reminding people just because China and India have been large jewelry markets doesn't mean they aren't developing more in the conditions of like financial assets, financial performance, financial portfolios. We've been seeing this change in Asia particularly and I think it's really exciting to see it happen. You know the Hong Kong government when the Chinese government announced that they are looking to make Hong Kong a hub for trading physical gold to complement what takes place in the OTC market in London. That's how significant it is. It's significant in the context of saying we want central banks and investors and financial instruments to be developed around that as well. Now in addition to that I think you're looking at people who are seeing gold different than they may have in the past whether it's in the form of an investment a diversifier real asset portfolio or even looking at it and saying how can we digitize it and bring it into the modern era and use it more like money more like a reserve asset locally for example at a state level in the US or or in my pocket as a as a means of actually transacting. So, I think that the demographic shift in Asia is big and I think that you're going to see modernization of ways to get access to gold and we're working on a lot of those programming uh type of ideas and and I think that that's going to be what we're going to continue to hear over the next 5 years.
>> Excellent. Thank you so much, Joe. Where can we follow your work and follow the World Gold Council?
>> You can get all your information at gold.org and you can actually subscribe to Unear which is my podcast and actually love it for people to check out what we do. We bring insights into the gold market on a global basis and subscribe to our research because we're pretty unique in terms of what we bring in and and the insights we share with you.
>> Great. Thank you. Please do follow the gold world gold council link down below and uh thank you for your time, Joe. Speaking at Syn.
>> Thank you for having me.
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