David Tuckwell on gold market

Transcript

Let's turn to the commodity that is on everyone's mind, Gold. We're gonna get into the outlook for this medal amid the macroeconomic backdrop with David Tuckwell from Global X ETF. David, good to have you with us. I mean, this has been a continued, I guess, bull run for gold with some of these prices and targets of $3000. But then in a session, I think maybe two sessions ago, we had the biggest intraday drop in a year. So just tell us what's behind all the moves. Yeah. So we've been seeing big swings in the gold price both up and down. Over the past few weeks and the answer to your question as to what's done it, umm the Chinese, more specifically the Shanghai futures market. When you trade gold on the futures market, you can do so with leverage and doing so tends to drive those big wild swings that we've seen and a lot of investors have made a lot of money in gold recently. So to our mind, the short sharp drop we saw a couple of days ago was profit taking, interesting, OK. So profit taking rather than I guess a de escalation of risk in the Middle East, we've also seen that too, absolutely one of the great appeals of. World is that it is a safe haven asset. So when geopolitics does calm down to some extent, people tend to unwind their gold position. But no, it's the evidence at this stage does suggest it's more profit taking. OK, and global central banks we know buying big into gold, just tell us a little bit about that. You mentioned Chinese buying, but a lot in India too. That's exactly right. So there's a myth in the market that central banks ended their relationship with gold after Richard Nixon ended the gold standard in 1971. But nothing could be further from the truth. Central banks remain the largest owners of gold and their trading activities in the gold market can and does set prices. And one of the things we've seen over the past two years in particular, central banks again led by China have stepped up their buying in a big way and that's helped drive the rally in gold. We're looking very closely at when we might see central bank cuts particularly being led by the Fed, but continue due to the fact that this looks to be pushed out even further and we're looking at that inflation print later in the week. If we don't see the Fed cut rates, what happens to the price of? Gold or or what do you see if we do see a rate cut? Well, I'll answer those questions in reverse order. OK, What will happen if the Fed cuts rates are It's widely believed that we'll see another leg up in the gold price. Statistically, you're 2 best predictors of the gold price are the strength of the US dollar and real yields on the US government's debt. When those two things fall, which they do when the Fed cuts rates, we have always, almost always seen the gold price rise. So traders and the market widely believed that should. Rate cuts materialize another leg up for the gold price. Sorry. You go continue your thought. Sorry, yeah, but should the Fed cut does not cut rates, which is what markets seem to be thinking as you said after the latest CPI print, well we could just trade a bit more sideways. We're looking as well at what their outlook is going to be. I mentioned some of these forecasts. You know, cities got 3000. That doesn't really seem like too much of A stretch given where we've been trading around this $2400 level. Yeah, I I have no crystal ball, no one does. If I knew the future, for sure, I'd be making a lot more money doing other things, as we all would. But yes, we've seen across the board, not only city, a bunch of other brokers and investment banks have revised up their targets for gold in the view that the Fed may cut rates later in the year or early next year. And what about the so-called digital gold, Bitcoin. Is that going to replace gold anytime soon? We have heard a lot of commentary from the Bitcoin community claiming that that could happen, but from my perspective the answer here is quite a clear cut, no? Bitcoin for its part, tends to be a speculators asset. It's not really held in the portfolio and institutions don't really touch it. Gold, for its part, is very much an institutional asset used as a safe haven and it's not really serving the same speculative function that Bitcoin is. So for my mind, I guess theoretically it's possible, but we've got a long way to go before that happens. Even though there are calls that, you know, crypto or Bitcoin could get to 200,000, I'm sure it could. I have. I have no doubt that that's a possibility every time you think. Bitcoins done it just seems to run higher. But again gold serves a very different function. It's much more the safe haven trade, that's much more the portfolio ballast, much less hot sauce, alright, less hot sauce, OK. What are we seeing in terms of some of the other commodities silver kind of following gold too that's exactly right. So we tend to see that when the silver, the silver price to some extent will follow gold just because you can use them to this set for the same purpose as to some extent you can use both of them for coins, for bars and jewelry. So when we see big gaps emerge in the price rise we. Prices, we usually say 1 followed the other and that's absolutely what we've seen with our silver recently as gold's gone up, silvers followed it higher and yet the markets watching that trade as well. Alright, well, you're at Global X ETF's. Tell us about how we can kind of hedge against all these moves. There's a number of ways you can hedge against the moves in the equity market at the moment. One would be direct short selling that comes with various risks, especially around margin calls, and it's it can be an appropriate way to hedge, but be sure you know what you're doing if you do go down that path. Another thing you could do, by contrast is again potentially just by gold. Gold, for its part, has a long history of diversifying against downward legs in the share market. And so should you be open to that asset in your portfolio, that's one thing you can use as well. What sort of demand are you seeing though in terms of the pickup for ETF's more broadly? So the ETF market is growing at about 30% a year on a cager about 30% a year over the past five years. And you really can't find anything quite like it in the funds management industry. The growth has been truly spectacular and what's driving it. The answer is regulations, especially around financial advisors. They've driven regulations, have driven commissions out of the system and they've also forced advisors to act a bit more. Like custodians to their clients and ETF's never paid commissions. So they're now on a level playing field with funds that once did and they don't charge very high fees either. So they align themselves quite nicely with that best interest duty that advises are under. And are you seeing kind of any changes in terms of volume volatility demand, right, Yep. So we have seen trading volumes pick up quite significantly in ETFs recently. We always find that when volatility rises, the trading volumes rise as well and we saw that most noticeably during. COVID, where volumes were almost an order of magnitude higher than they were in before the COVID wave set in. And if we do see VIX pick up again and we do see volatility continue to rise, we'd imagine that that would translate into continued higher trading volumes for ETFs as well.