Gold has risen 6% in less than a week, achieving an all-time high.
Markets’ expectations of a Fed interest rate cut later this year are helping fuel gold’s rally. According to CME Group’s FedWatch Tool, there is a 69.8% chance that the Fed will cut rates at their June FOMC meeting. Later in the year, the probability is even higher (87.9% in July, 97.6% in September).
Additionally, troubles in the banking sector are bubbling up again.
Silver has also rallied, but not quite as much as gold.
The gold/silver ratio now sits at 89.92, more than 30% higher than its historical average. (In other words, silver is very undervalued against gold.)
Gold rush in the East, but not the West
But who is pushing gold higher? According to the World Gold Council, gold demand in the West is still relatively weak.
Gold-backed ETFs experienced $2.8 billion in net outflows in January. This was the eighth consecutive month of outflows. In fact, 18 of the last 21 months have experienced outflows, indicating a severe under-allocation to gold among Western investors.
Meanwhile, in the East, gold demand looks totally different. Asian gold funds have experienced 11 months of consecutive inflows, recently reaching an all-time high in assets under management. In January, Chinese investors withdrew 271 tons of gold from Shanghai Gold Exchange, the highest level on record.
