5.1 Introduction to Fundamental Analysis

• Fundamental analysis: Determining the “fair value” of an asset based on economic, financial, or geopolitical factors.

• For stocks: Based on business performance, financial health, and management quality.

• For gold: Focus is on:

  • Inflation & interest rates

  • US Dollar strength

  • Global economic stability

  • Geopolitical events

  • Market demand & supply

Gold is valuable largely because of its historical role, rarity, and societal perception. Its “intrinsic value” is not measurable like a stock.

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5.2 Economic Indicators Affecting Gold Prices

Inflation & Interest Rates

• High inflation: Investors flock to gold as a hedge.

• High interest rates: Bonds yield more, making gold less attractive.

• Exception: If inflation outpaces interest rates, gold regains demand as a safe store of value.

Strength of the US Dollar

• Gold is denominated in USD, so:

  • Strong USD → gold more expensive → demand falls → price drops

  • Weak USD → gold cheaper → demand rises → price increases

Global Economic Stability

• During recessions or crises, gold demand rises as a safe-haven asset.

• Example: Gold performed strongly during the 2007 stock market collapse and COVID-19 pandemic.

Geopolitical Events

• Gold prices spike during wars, terrorism, or political unrest.

• Rally is often short-lived (“buy the rumor, sell the news”).

• Events outside the US usually have a smaller impact.

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5.3 Market Demand & Supply

Jewellery & Industrial Demand

• Jewellery: Largest driver (~40% of global demand; India & China lead).

• Industrial use: Electronics, healthcare devices, nanomaterials (~21% of global demand).

Central Banks

• Central banks hold ~35,000 tonnes of gold (~1/5 of all mined gold).

• Increased buying drives upward price pressure.

Mining & Production

• Gold mining remains the main supply source (~3,363 tonnes in 2023), plus recycled gold (~1,238 tonnes).

• Disruptions (war, labor strikes, geopolitics) → reduced supply → price spikes.

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5.4 Financial Reports & Market Data

• Gold ETFs & investment funds: Regular reports on trends and market data.

• Gold mining companies: Financial statements reveal production levels and potential price impacts.

• Tracking these reports helps understand supply trends and market sentiment.

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5.5 Other Events Impacting Gold Prices

• GDP, employment, consumer confidence: Strong economy → demand for risk-on assets rises → gold price may fall.

• Monetary policy & interest rates:

  • Low rates → gold more attractive → prices rise

  • High rates → bonds yield more → gold less attractive

• Inflation interplay: Gold remains a hedge if inflation outpaces yields.

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5.6 Case Studies: Gold Over the Last 10 Years

2015–2016 Stock Market Selloff

• Global market downturn caused by:

  • Chinese stock market crash

  • Slowing GDP in China

  • Falling oil prices

  • Greek debt default

  • End of US quantitative easing

  • Brexit vote (June 2016)

• Gold vs S&P 500: Gold up 15.87%, S&P 500 up only 1.47% → safe-haven effect.

2020 Coronavirus Crash

• Triggered by pandemic fear and economic uncertainty.

• S&P 500 fell sharply (~28.77%), gold rose (+6.79%).

• Gold outperformed equities until market confidence was restored.

Post-Pandemic Trends (2022–2024)

• Even with stock market recovery, gold remained strong due to:

  • Persistent inflation

  • Ukraine-Russia war

  • Geopolitical tensions (Gaza, Red Sea shipping routes)

  • Slower-than-expected global recovery

  • Central banks increasing gold reserves

Conclusion: Gold retains safe-haven status and high liquidity, making it attractive during uncertain times.

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Module Recap

1. Fundamental analysis helps assess gold’s fair value and anticipate price movements.

2. Economic indicators: Inflation, interest rates, USD strength, economic stability, geopolitical events.

3. Demand & supply: Jewellery, industry, central banks, mining, and recycled gold.

4. Sources of data: Financial statements of mining companies, ETF/fund reports, economic news, monetary policy announcements.

5. Case studies: Historical crises (2015–16, 2020) show gold’s safe-haven performance.

6. Gold prices are influenced by macro, geopolitical, and market factors, not intrinsic business fundamentals.