Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Choppy gold market turns to Santa for December support
Ole Hansen
Head of Commodity Strategy
Key points in this update:
- Gold’s current choppy price action points to a near-term peak in the market as traders’ begin to lock in profits and reduce exposure ahead of yearend
- Given the importance of the US economy and, with that, the direction of the USD and US Treasury yields, the market continues to focus on President-elect Trump’s nominations for key government roles
- Traders are pondering whether gold will manage an eighth consecutive Santa rally this December
Gold’s choppy price action—most recently Monday’s 3.5% slump following last week’s strongest surge in 20 months—points to a near-term peak in the market as traders’ convictions fade, especially with the end of the year fast approaching, and with that an urge to book profit and lower exposure. However, given the challenging macroeconomic and geopolitical climate, the prospect for further gains next year exists. Trump’s radical plans on tariffs, tax cuts, and deportation highlight the risk that inflation and debt may both surprise to the upside, two factors gold investors seek protection from.
Given the importance of the US economy and, with that, the direction of the USD and US Treasury yields, the market continues to focus on President-elect Trump’s nominations for key government roles. This week’s volatility in gold and other commodities has ebbed and flowed with these announcements. On Monday, prices dropped after Trump announced his choice of Scott Bessent as Treasury Secretary, an experienced person who is considered one of the safest choices.
The market calm was then disrupted once again after Trump threatened 25% tariffs on Canada and Mexico on day one of his new administration in January and threatened a further 10% tariff on all products from China. This was followed by Trump’s nomination of Jamieson Greer as the US Trade Representative. Greer sees China as a “generational challenge” to the US and has advocated for a strategic decoupling from the country, and he will now manage the implementation of Trump's tariff plans.
The gold price action has turned increasingly choppy, leading to a USD 253 correction after prices hit a record high on 31 October at USD 2,658 per ounce. Support was found after prices corrected 0.5 of the June to October rally, a relatively small correction considering how far gold had traveled earlier this year. In the coming weeks, we may see investors use rallies to lower their long exposure ahead of year-end. Overall, we maintain the view that USD 3,000 could be reached in 2025.
Will gold and silver see another Santa rally?
This headline was given to an article I wrote a year ago, in response to data that showed gold and silver had both seen strong December rallies in the previous six years. As it turned out, silver failed while gold went on to record a small 1.3% gain to end 2023 at USD 2062. Fast forward, and the big question is whether we may witness an eight consecutive gain this December? Following the recent correction, chances of a repeat has improved as traders and investors no longer have to pay a record price to gain exposure. However, the biggest headwind remains gold’s already strong 28.3% gain for the year, leaving it close to the 29.6% in 2010 and 31% in 2007. While the fundamental supportive outlook into 2025 has not changed, a gain of this magnitude may attract profit taking and position squaring ahead of year-end.
Reasons to stay invested in gold and silver through 2025
Gold and silver, which are currently trading up 26% on the year—down from a 47% gain in October—have both been positively impacted by several developments this past year, most of these reflecting an unbalanced world where investors are willing to buy so-called "dead" assets that provide no interest or dividend and cost money to store.
The strength in precious metals this year has been even more impressive given the total lack of support from the USD, which, against a basket of major currencies, trades up 5.5% on the year. The introduction of trade tariffs on US imports next year is generally seen as USD-positive; however, the knock-on effects of a stronger USD can ripple through the global economy, particularly harming countries reliant on USD-denominated debt, commodity trade, and export-driven growth, potentially providing continued support for alternative investments such as gold and silver.
The drivers behind our continued positive outlook for investment metals in 2025 are several, the most important being:
- Central bank buying to diversify holdings away from the US dollar and government bonds.
- Interest rate cuts reducing the "cost" of holding gold compared to investing in secure short-term government bonds.
- Safe-haven demand amid a fractured world with unresolved conflicts in the Middle East and Russia-Ukraine, along with risks of trade wars and tariffs lifting inflation in 2025.
- Chinese investors turning to gold amid record-low savings rates and property market concerns.
- Concerns over fiscal instability as governments around the world increase debt burdens, not least in the US as President-elect Trump rolls out his radical and high cost policies.
Silver looks for support below USD 30
Silver’s strong run to a 12-year high in October proved unsustainable and eventually forced a strong reversal, as fading support from gold, copper, and the dollar left many recently established longs above USD 32.30 nursing losses. Support has now twice been found around USD 29.70, the 0.618 retracement of the August-to-October rally, with additional support below being the trendline from the February low.
Recent commodity articles:
27 Nov 2024: Podcast: Will gold enjoy a Santa rally for the eight year in a row?
25 Nov 2024: COT Report: USD long jumps; Mixed week in commodities
22 Nov 2024: Commodity weekly: Strongest performance since April
19 Nov 2024: Gold and silver rise on Russia-US tensions
18 Nov 2024: COT: Limited dollar demand despite strength; Acclerated metals selling
11 Nov 2024: COT: Speculators bought energy and grains, sold gold ahead of elections
8 Nov 2024: Commodity weekly: Mixed response to Trump 2.0
6 Nov 2024: Podcast: US election and the market reactions, including commodities
6 Nov 2024: Trump and Republican victories spark commodity decline
4 Nov 2024: COT: Speculators flock to dollars, exit commodities ahead of US election
1 Nov 2024: Commodity weekly: Some weakness seen ahead of critical week
31 Oct 2024: Crude prices seek stability ahead of key support and US elections
30 Oct 2024: Will the US election result spark a gold correction?
29 Oct 2024: Podcast: Electrification's surge impact on commodities and equities
28 Oct 2024: COT: Crude length cut; silver and platinum see strong demand
25 Oct 2024: Commodity weekly: Market jitters on the rise ahead of U.S. elections
23 Oct 2024: Crude prices stalled by two-sided market risks
22 Oct 2024: Gold and silver's remarkable run in four charts
22 Oct 2024: Podcast: The Trump trade enters the metal market
21 Oct 2024: COT: Dollar shorts squeezed; Shift in commodity exposure from energy to metals
18 Oct 2024: Commodity weekly: Gold's record-breaking run continues
17 Oct 2024: Copper prices decline amid doubts about China stimulus impact
16 Oct 2024: How high can gold and silver rally?
8 Oct 2024: Podcast: Navigating market shifts: Fed rate cuts, commodities and rising food prices
8 Oct 2024: Video: These commodities might be impacted by the US election
7 Oct 2024: Crude oil surge caps strong four-week rally for commodities
7 Oct 2024: COT: Broad buying momentum persists, led by Brent, copper and grains
2 Oct 2024: Q3 2024 Commodity Outlook: Gold and silver continue to shine bright
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