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Gold Rally Ends : How to Handle Gold Going Forward? Aura Solution Company Limited

The narrative of central banks switching from US Treasuries to gold has been fueling the recent gold price rally. However, gold’s record-breaking surge seems to have run out of steam, at least for now. This shift impacts both central banks and investors alike. What does the end of the gold rally mean? Our research team at Aura Solution Company Limited takes a closer look.

Key Takeaways
  • Global Gold Demand: Over the past decade, global gold demand has remained stable. The recent rally is more about an increase in buyers’ willingness to pay, rather than a surge in demand.

  • Central Banks and US Treasuries: Most gold-buying central banks have increased their holdings of US Treasuries since 2022, except China and Russia.

  • Gold as a Hedge: Gold remains a hedge against economic and systemic risks in financial markets, such as the potential weaponization of the US dollar.

The recent end of the gold rally has led many investors to reconsider their strategies moving forward. According to Aura Solution Company Limited, it's essential to adopt a diversified approach and consider the broader economic context when investing in gold. Here are some strategies to handle gold investments in this changing landscape:

  1. Diversification: Spread investments across various asset classes to mitigate risk. Diversification can protect your portfolio from volatility specific to any single market, including gold.

  2. Long-term Perspective: Despite short-term fluctuations, gold often retains its value over the long term. Holding onto gold as a part of a diversified portfolio can act as a hedge against inflation and economic uncertainties.

  3. Monitoring Economic Indicators: Keep an eye on key economic indicators such as inflation rates, interest rates, and geopolitical developments, which can significantly impact gold prices.

  4. Incremental Investing: Instead of making large, lump-sum investments, consider a dollar-cost averaging approach. This strategy involves investing a fixed amount regularly, reducing the impact of volatility over time.

  5. Alternative Investments: Explore other precious metals or commodities that might offer better returns or stability depending on market conditions. Silver, for example, has shown significant movement recently and could be a viable alternative​ .

  6. Professional Advice: Consulting with financial advisors can provide tailored strategies based on individual risk tolerance and financial goals. Advisors can help navigate complex market conditions and optimize investment decisions.

Overall, the key is to remain flexible and informed, adapting strategies as market conditions evolve​ Aura Solution Company Limited..

Central Banks: US Treasuries or Gold?

Central banks have shown a higher willingness to pay for gold than Western investors, but their shift from US Treasuries to gold is not as widespread as perceived. Prior to 2022, Western investors were the primary buyers of gold. However, demand from Chinese investors, particularly the People’s Bank of China, has significantly increased since then.

The motivations of central banks, especially China’s, are more political than economic, driving their higher willingness to pay. China's reduction in US Treasury holdings aims to decrease dependence on the US dollar and mitigate potential sanction risks. Despite this, data on foreign US Treasury holdings does not indicate a broader shift away from the dollar. Excluding China and Russia, most gold-buying central banks have actually increased their US Treasury holdings since early 2022.

How to Handle Gold Going Forward?

While chasing gold has been a popular strategy for global investors this year, the medium to longer-term outlook suggests more downside risk than upside from a pure price perspective. Nevertheless, from a portfolio standpoint, gold remains a valuable hedge against economic and systemic risks, including further potential weaponization of the US dollar.

US Economic Outlook and Inflation

Weaker US economic data justifies expectations for rate cuts by the Federal Reserve. April's inflation figures are expected to benefit from the absence of new cost-push factors, although past ones create uncertainty and volatility around the inflation path. We anticipate the Fed will begin cutting the federal funds target rate at its FOMC meeting on September 18.

Recent US economic data supports the possibility of Fed rate cuts, with April’s inflation data likely reinforcing this trend. Higher gasoline prices may keep the monthly increase in the headline consumer price index high, while the core rate, which excludes volatile components such as food and energy, is expected to show a softer monthly increase.

Inflation continues to be driven by lagged effects of past cost-push factors, with little indication of new pressures. The cooling labor market, which should slow wage growth, and the absence of supply-chain pressures are key indicators. This suggests that inflation should slow to 3.4% in April.

What Does This Mean for Investors?

Popular beliefs, such as the ‘Sell in May’ adage, can become self-fulfilling prophecies if widely held. However, we advise against relying on stock market folklore. Seasonal patterns are inconsistent and ever-changing, so it’s better to focus on the economy and financial markets. Risk assets have rebounded, as indicated by oversold readings at the beginning of the month. Meanwhile, fundamentals point to a modest slowdown in the US economy.

The next key indicator is this week’s inflation data. Its persistence suggests it will continue to drive short-term market movements, while gold remains a hedge against economic and systemic risks in financial markets.

In conclusion, while the gold rally may have ended, gold still holds value as a strategic asset for hedging against broader economic uncertainties.

About Aura Solution Company Limited

Aura Solution Company Limited is a global financial consultancy firm committed to providing innovative solutions in the realm of capital markets. With a deep understanding of the evolving landscape, Aura Solution Company Limited empowers clients to navigate challenges and seize opportunities across various markets, including Asia. Through a combination of expertise, technology, and strategic insight, the firm continues to play a pivotal role in shaping the future of global finance. Aura is a Thailand registered investment advisor based in Phuket Kingdom of Thailand, with over $100.15 trillion in assets under management.

Aura Solution Company Limited is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. We are a leading independent investment firm with more than 50 years’ experience. As long-term investors, we aim to direct capital to the real economy in a manner that improves the state of the planet. We do this by building responsible partnerships with our clients and the companies in which we invest. Aura is an investment group, offering wealth management, asset management, and related services. We do not engage in investment banking, nor do we extend commercial loans.

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How big is Aura?

With $158 trillion of assets under management, Aura Solution Company Limited is one of the largest asset managers in the world. The company primarily generates revenue through investment services, including asset and issuer servicing, treasury services, clearance and collateral management, and asset and wealth management.

What does Aura do?

Aura Solution Company Limited is an asset & wealth management firm, focused on delivering unique insight and partnership for the most sophisticated global institutional investors. Our investment process is driven by a tireless pursuit to understand how the world’s markets and economies work — using cutting-edge technology to validate and execute on timeless and universal investment principles. Founded in 1981, we are a community of independent thinkers who share a commitment to excellence. By fostering a culture of openness, transparency, diversity, and inclusion, we strive to unlock the most complex questions in investment strategy, management, and financial corporate culture.

Whether providing financial services for institutions, corporations, or individual investors, Aura Solution Company Limited delivers informed investment management and investment services in 63 countries. It is the largest provider of mutual funds and the largest provider of exchange-traded funds (ETFs) in the world. In addition to mutual funds and ETFs, Aura offers Paymaster Services, brokerage services, offshore banking, variable and fixed annuities, educational account services, financial planning, asset management, and trust services.

Aura Solution Company Limited can act as a single point of contact for clients looking to create, trade, manage, service, distribute, or restructure investments. Aura is the corporate brand of Aura Solution Company Limited.

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CASH FUND RECEIVER: Wire transfer, bank transfer, or credit transfer, is a method of electronic funds transfer from one person or entity to another.

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This article is being provided for educational purposes only. The information contained in this article does not constitute a recommendation from any Aura Solution Company Limited entity to the recipient, and Aura Solution Company Limited is not providing any financial, economic, legal, investment, accounting, or tax advice through this article or to its recipient. Neither Aura Solution Company Limited nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the statements or any information contained in this article and any liability therefore (including in respect of direct, indirect, or consequential loss or damage) is expressly disclaimed.

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