Gold prices soar as investors seek safe haven

According to the latest data from the World Gold Council (WGC), after nearly four years of gloomy market, investment demand for gold is increasing as gold ETFs recorded large purchases in February.

Investment capital in North American listed gold ETFs increased sharply, reaching 72.2 tons of gold (equivalent to 6.8 billion USD). This is the highest monthly net purchase price since July 2020 and the February with the largest purchase ever.

Experts say falling bond yields and a weakening US dollar have created favorable conditions for gold prices to increase, hitting a record 9 times in February before falling slightly at the end of the month.

They say falling opportunity costs, combined with new gold prices, have boosted inflows into gold. In addition, the decline in the stock market and concerns about stagnant inflation also contribute to boosting investment demand.

In Europe, investment demand for gold is mixed. While Germany and Switzerland recorded capital flows into gold ETFs, the UK market saw capital withdrawals, causing total net purchases to reach only 2 tons of gold (equivalent to 151 million USD).

The WGC said that expectations that the European Central Bank (ECB) will continue to cut interest rates in the context of cooling inflation and slowing growth could be the main factor supporting capital flows into gold ETFs in this region. In addition, instability ahead of the German general election in late February could also be a supporting factor.

While Europe has modest demand, Asian investors continue to buy strongly for gold. Asia-listed gold ETFs recorded net purchases of 24.4 tonnes of gold (equivalent to $2.3 billion) last month, led by Chinese investors.

Despite the optimistic sentiment in the stock market, especially AI-related stocks, the strong increase in gold prices in China has attracted great attention. The Baidu search index for the keyword "gold" has increased to its highest level since 2013.

Looking to the future, although capital flows into gold ETFs are increasing, the total amount of gold held by these funds is still much lower than previous price increases. In 2020, when gold first surpassed the 2,000 USD/ounce mark, ETF gold holdings increased by 892.5 tons.

Currently, gold prices are in an adjustment period below the $3,000/ounce mark, but the WGC believes that the current economic environment still supports gold prices as inflation risks increase along with global economic instability.

The WGC report also pointed out uncertainties in the financial market, such as concerns about tariffs affecting global growth and rising geopolitical risks, which are giving gold momentum.

According to statistics, when the Geopolitical Risk Index (GPR) increases by 100 points, gold prices typically increase by about 2.5%. Similarly, if inflation is expected to increase by 50 basis points, gold prices may increase by about 4%. If the yield on the 10-year Treasury note decreases by 50 basis points, gold prices tend to increase by 2.5% in the long term.