Gold gave back a little more of its y-t-d gains in December, finishing down 1% on the month, but up 26% on the year
According to our Gold Return Attribution Model. the primary driver for gold’s decline was a strong rally in the US dollar index (opportunity cost FX) which finished the year at its high. Softening gold’s drop were a rise in breakeven inflation expectations and the Geopolitical Risk index (risk & uncertainty), likely on the back of martial law declared in South Korea, as well as small global gold ETF inflows (momentum).
Global gold ETFs eked a US$778mn (4t) gain in flows thanks to strong Asian ETF buying, significantly offsetting outflows in North America during December. Those outflows were quite benign given the weakness in November and the prospect of profit-taking following such a strong year. A positive sell-side outlook for gold probably helped constrain a bigger end-of-year shift out of gold. Profit-taking also likely occurred in futures, where somewhat extended managed money net longs shed US$4bn (-49t) over the month taking total net positions down to US$65bn (764t).
