According to analysis by IG Group (a financial company specializing in providing online trading services, including difference contracts, Forex, stocks, commodities and cryptocurrencies), gold prices are no longer affected by investors' reactions to macroeconomic factors but mainly by physical flows and demand from central banks.
In a report released on Monday, IG analysts said that gold always has a different meaning for each group of investors. Some see gold as a hedge against inflation, others see it as a safe haven.
For many, gold is an alternative to the US dollar or government bonds with interest rates. At eyeQ, our smart models take all those factors into account - inflation expectations, risk appetite (such as the VIX), the USD and real yields, the report wrote.
Currently, these factors point to a reasonable gold price of $2,906 an ounce a gold price that should be achieved under current macro conditions, IG experts said.
Signs to identify factors affecting gold prices
IG pointed out that, although the pricing model shows that gold prices have tended to increase over the past several months thanks to support from macro factors, after a recent adjustment, gold prices are trading 1.9% lower than their fair value.
"This is a slight discount, but it is not too unusual. However, for those who are gold fans, there may be more attractive options. Gold-mining stocks such as Newmont are currently trading 13% below their fair value under macro conditions, IG commented.
Experts also share a simple way to determine whether gold prices are being dominated by macro factors or physical flows.
Lets check the correlation index of the macro factor on the chart. The higher this index is, the more macro factors dominate and our signal is stronger. If the index is low, it means flows like central bank purchases are playing a bigger role, IG said.
According to IG's model, the important threshold is 65%. If it breaks above this level, macro factors will dominate. If lower, it is necessary to focus on other factors such as ETF flows or central bank hoarding activities. Currently, this is the main story in the gold market.
Gold prices are recovering strongly last night after poor performance last week. The early morning gold price was at 2,892.5 USD/ounce, up 34.4 USD/ounce compared to the previous session.
