Market Quote: Bullion’s Benefactor, Crude’s Crux
Author: The editor's desk
April 24, 2024
A mid-week analysis of what’s happening in global financial markets from the perspective of AGF’s investment management team.
Testing Gold’s Mettle
China’s exceptionally strong gold demand from both its central bank and the private sector has been a driving force behind the surge in gold prices over the past two years. In fact, China has taken over gold pricing power from the West due to its relentless appetite for the precious metal. Last year, Chinese consumption of gold jewelry, bars and coins reached record levels, with gold jewelry demand rising by 10%.
Gold has recently retracted from a strong run to US$2,400/oz as investors focus on easing tensions in the Middle East and further signs that the U.S. Federal Reserve may keep rates higher for longer. Some traders are also pointing to tactical short-selling of gold given the strong move. As geopolitical risks ease, it is likely that attention will turn to inflation data in the U.S., which will provide clues about the eventual path for monetary policy. We believe the cooling of expectations of the number of rate cuts in 2024 will continue to weigh on the gold price.
Testing Black Gold’s Mettle
Brent crude oil prices exhibited heightened volatility over the past few weeks as geopolitics increasingly came to the fore with direct blows being exchanged between Israel and Iran. The attacks – which neither touched physical barrels of oil nor energy infrastructure – have been so far interpreted by markets as “de-escalatory” in nature, yet we believe the Israel-Hamas conflict should still be considered a potential flashpoint for energy prices going forward.
Elsewhere, it is equally important to keep an eye on the Russia-Ukraine conflict where Ukraine has increasingly demonstrated the ability and willingness to attack Russian energy infrastructure targets amid a slowdown in Western aid. And despite sanctions against it, Russia remains a key figure in world energy production and a prolonged impairment in capacity could create upward pressure on crude oil prices in the future.
Moreover, fundamental data for crude looks constructive as the summer driving season approaches, all while there continues to be a persistent threat from the two geopolitical conflicts mentioned above. And even though it is difficult to accurately assess the magnitude that such conflicts will have on crude in the near-term, it is increasingly looking likely that the recent volatility we’ve seen is here to stay.
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The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds, or investment strategies.
Commentary and data sourced from Bloomberg, Reuters and other news sources unless otherwise noted. The commentaries contained herein are provided as a general source of information based on information available as of April 24, 2024 and are not intended to be comprehensive investment advice applicable to the circumstances of the individual. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however, accuracy cannot be guaranteed. Market conditions may change and AGF Investments accepts no responsibility for individual investment decisions arising from the use or reliance on the information contained here.
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About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. Our companies deliver excellence in investing in the public and private markets through three business lines: AGF Investments, AGF Capital Partners and AGF Private Wealth.
AGF brings a disciplined approach, focused on incorporating sound, responsible and sustainable corporate practices. The firm’s collective investment expertise, driven by its fundamental, quantitative and private investing capabilities, extends globally to a wide range of clients, from financial advisors and their clients to high-net worth and institutional investors including pension plans, corporate plans, sovereign wealth funds, endowments and foundations.
Headquartered in Toronto, Canada, AGF has investment operations and client servicing teams on the ground in North America and Europe. AGF serves more than 800,000 investors. AGF trades on the Toronto Stock Exchange under the symbol AGF.B.
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