The document discusses several factors that may impact the price of gold, including inflation, currency fluctuations, geopolitical risks like war, interest rates, and supply and demand dynamics. While inflation does not have a strong direct correlation with gold prices, currency depreciation and geopolitical instability tend to drive gold prices higher. Interest rates also have an inverse relationship with gold, as rising rates make bonds and dividends more attractive alternatives. Supply and demand from both institutional investors and countries like China and India are also important determinants of the gold price.

1. Factors That May Affect the Price of Gold

2. Points To Be Covered Today:
• Inflation
• Currency Fluctuations
• The Risk Of A Recession Due To War
• Interest Rates
• Supply & Demand
• Long-term Positive View On Gold In 2021-2030
• Gold Price & Chart
• Gold Flash Crash: What Happened
• Gold Price Chart: 10 Minute Timeframe

3. Inflation
• Inflation has an impact on the value of XAU, but not as much as one might
think.
• Most novice gold investors believe that if inflation rises in the US, then gold
price should also go up since more inflation dollars will have to be paid per
ounce.
• However, in the long term, there is no strong correlation between inflation and
gold prices.
• This can be seen from the chart below, which shows the inflation dynamics in
the US and gold prices.

4. Inflation - I

5. Inflation - II
• This lack of a strong correlation can be explained by two reasons:
• a) Gold is not a commodity. That is, it is not consumed by industry, like oil or
ferrous metals, and therefore reacts to the purchasing power of the currency
differently than other goods
• b) During periods of economic and stock market growth, gold has to
“compete” for profitability and investor attention. Moreover, during such
periods, inflation is usually at a high level.

6. Currency Fluctuations
• Gold, along with the US dollar, which is losing its reserve currency function, is
a safe haven market instrument.
• Therefore, if the exchange rate of one of the currencies (for example, the
dollar) depreciates relative to the other reserve currencies, while the
purchasing power of buying gold in other currencies is preserved, then the
logical consequence is the rise in the price of gold relative to the depreciated
currency.
• The chart shows an inverse long-term relationship between the US dollar
index (white line) and the dynamics of gold prices (yellow line).

7. Currency Fluctuations - I

8. The Risk Of A Recession Due To War
• War or the threat of war is the most significant (after
financial market crises) source of uncertainty for
investors.
• Gold is best used as a safe investment in times when
investors are terrified, and war may well cause such
conditions in the market.
• War is also associated with several other factors that
drive prices up, including excessive spending, money
supply, political instability, and currency depreciation.

9. Interest Rates
• Gold is sensitive to interest rates because it does not generate current income.
• Therefore, it is highly sensitive to alternatives in the stock market that offer potential
income, such as bonds or even stocks that pay dividends.
• There is a noticeable, albeit not perfect, negative correlation.
• When US government bond yields rise, the likelihood is high that gold will trend sideways
or even downtrend, while declining yields tend to lead to very positive movements in gold
prices.
• For example, to combat the recession in the early 2000s, the Fed lowered interest rates to
very low levels, forcing long-term investors to withdraw from low-yield bonds and diversify
their portfolios with gold.
• This provided good support to the already rising gold prices.

10. Supply & Demand
• Supply and demand are the most difficult factors in assessing the impact on
the cost of metal.
• Large investors in gold, including central banks, the IMF, and leading funds,
significantly impact the market.
• The actions of these participants can substantially change the demand for
gold jewellery and investment instruments.
• Accounting for the actions of these large players is an impossible task for an
ordinary private investor who does not have access to the disclosed
information of all the players' data.

11. Supply & Demand - I
• For a general understanding of the market balance, you need to know that
most of the demand for gold is more or less evenly distributed between
investment instruments and jewelry.
• As an example, it is shown below that China and India (with strong economic
growth) have become major buyers of gold over the past two decades to
invest and create reserves and, therefore, have provided an additional
stimulus for price increases.

12. Conclusion: Is Gold A Good Investment?
• Not only is gold known for being a portfolio
diversifier, but with inflation fears on the rise,
investors tend to turn to gold because it is
considered a good hedge against rising prices.
• "During periods of systemic risk, both gold and
the dollar tend to be used as safe havens and may
move in a similar direction," says Juan Carlos
Artigas, Head of Research, World Gold Council.

13. Long-term Positive View On Gold In 2021-2030

14. Gold Price

15. Gold Chart

16. Gold Flash Crash: What Happened
• An exciting start to the week as Gold tumbles 4.5% at the Asia open, before bouncing 3.6% off the
lows into the European open.
• The move overnight had been a continuation from the soft close at the backend of last week in
response to the very strong NFP report.
• As a quick recap, the NFP headline printed above expectations at 943k vs 870k expected and also
much better than the dismal ADP report, which further highlights the tenuous link between ADP and
NFP.
• (As I said on Friday, the ADP report did hold relevance in setting the bar low for an upward
surprise).
• Alongside this, the unemployment rate fell 0.5ppts to 5.4% vs 5.7% expected, hitting a fresh cycle
low.
• In turn, this raises the likelihood that Chair Powell may well use the Jackson Hole Symposium at
the end of the month to announce a taper signal, which would be rather fitting as it would mark the
anniversary of the average inflation targeting announcement.

17. Gold Flash Crash: What Happened - I
• Going back to the flash crash move overnight, it is important to remember that markets are
typically at their most illiquid during the Asia session, as evidenced in recent years with the
Japanese Yen in 2019 and the Pound in 2016.
• The thin liquidity conditions would have been further exacerbated by the fact that Japanese
markets had been closed due to a public holiday.
• Keep in mind, that this was the first opportunity for leveraged Asian based traders to react
to Friday’s NFP report, therefore I would not read too much into the move as a response to
new information and instead more a continuation of Friday’s reaction.
• On the chart, the break of 1760, which has been a pivotal level in recent months looks to
have triggered stops below prompting large sell orders to take gold to the YTD double
bottom.

18. Gold Price Chart: 10 Minute Timeframe

19. What Next For Gold?
• Given that Gold has bounced $65 off the lows, the aforementioned $1760 level will
be the key area to watch where failure to break above keeps the immediate
pressure on the downside in the (not so) precious metal.
• Above 1760, resistance resides 1790-1800.
• Elsewhere, while Fed speakers will garner attention, the main highlight on the
economic calendar will be the US CPI report, where a sizeable headline beat could
prompt another push lower in gold.
• Now I realise what I’m saying goes against the popular belief that gold is an inflation
hedge, however, if inflation were to notably beat expectations, this would likely
increase bets of tighter monetary policy, leading to higher USD and yields, which in
turn would weigh on Gold.

20. Factors That May Affect the Price of Gold

21. Thanks for listening
Factors That May Affect the Price of Gold