An analysis report by IG shows that gold prices are no longer driven by investors' reactions to macroeconomic fundamentals, but by physical flows and central bank demand.

IG analysts wrote in a report released on Monday that gold always represents different things for different people. They said, "Some people see it as an inflation hedge tool, while others see it as a safe haven tool. For many people, it is a substitute for the US dollar or interest bearing government bonds. At eyeQ, our intelligent model considers all of these perspectives: inflation expectations, risk appetite (such as VIX), the US dollar, and real returns

They stated, "Currently, these factors point to a fair value of $2906, and given the current macro environment, gold should be at this level

Image: The orange line in the upper half represents fair value, while the black line represents spot price; The lower half of the graph shows macroscopic correlation, with the dashed line indicating the critical level of 65

IG pointed out, "Our model's fair value (orange line) has been on an upward trend for several months, indicating solid macro support for the rise in gold prices. However, after the recent decline, the current trading price of gold is 1.9% lower than fair value, slightly discounted, but not particularly significant. Nevertheless, for gold investors, there may be better investment value elsewhere. Gold mining stocks like Newmont appear much cheaper, currently 13% lower than fair value based on the macro environment

Analysts also shared a simple method to determine whether the gold market is currently driven by macro factors or physical traffic.

They said, "Look at the macro correlation score in the above chart. High numbers here indicate that macro drivers dominate, and our signal is stronger. Low numbers indicate that capital flows (such as central bank purchases) are more influential

IG stated that according to this model, the critical point is at the 65% level. They said, "Above that, there are macro rules; below that, you will want to delve deeper into other driving factors, such as ETF fund flows or central bank reserves. Now, that's the story

After last week's sluggish performance, gold prices began to strengthen on Monday. On Monday, it rose 1.20% to close at $2893.21 per ounce.