Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Gold and silver’s remarkable run in four charts
Ole Hansen
Head of Commodity Strategy
Key points
- Gold and recently especially silver continues to race higher despite headwinds from rising yields and firmer dollar
- We conclude that this remarkable strength is increasingly being seen as a hedge against a potential 'Red Sweep,' at the November 5 elections
- Silver has following a significant breakout last Friday now jumped to a 50% year-on-year gain
Over the past week, gold has surged to a new record near USD 2,740, marking a year-on-year increase of nearly 40%. Silver has following a significant breakout on Friday when it closed above previous resistance at USD 32.50 jumped to a 50% year-on-year gain. Throughout the year, we have extensively discussed why 2024 would be pivotal for investment metals. While this recent rally has exceeded expectations, several factors continue to support the upward trend, despite emerging challenges.
Key drivers of this bullish phase include concerns over fiscal instability, safe-haven demand, geopolitical tensions, de-dollarization driving strong demand from central banks, and uncertainties surrounding the US presidential election. Additionally, rate cuts—by the Fed and other central banks—are reducing the cost of holding non-interest-bearing assets like gold and silver. This environment is already spurring renewed interest in gold-backed ETFs, particularly from Western asset managers who had been net sellers up until May 2024.
Despite rising yields and a stronger USD, gold and silver have continued their ascent. Over the past week, the 10-year US Treasury yield rose by 17 basis points to 4.20%, while the Bloomberg Dollar Index gained 0.6%. Meanwhile, the timing, pace and depth of future rate cuts has slowed, with Federal Reserve officials signalling a more cautious approach. Yet, gold and silver remain resilient, defying these typically negative market signals.
Besides continued worries about a further deterioration in the Middle East, we conclude that this strength is increasingly being seen as a hedge against a potential 'Red Sweep,' where one political party controls both the White House and Congress. This scenario raises concerns about excessive government spending, pushing the debt-to-GDP ratio higher, while fueling inflation fears. Investors are turning to precious metals as protection, even as expectations for lower rates and easier financial conditions fade, as highlighted by the four key charts tracking this exceptional divergence.
- Rate cut expectations, as seen through the SOFR futures market, have seen hopes for another 50 basis points cut, followed by a total of 50 basis points at the following two meetings, cut in half so far.
- Gold’s attractiveness as an alternative non-yielding investment tends to depend on the prevailing opportunity cost—i.e., the alternative income an investor would earn through a short-term investment in secure government bonds. In the last month, reduced rate cut expectations have driven up the return on a 12-month Treasury bill.
- Gold has risen despite recent USD strength, which has been supported by Middle East haven flows and strong US economic data, driving flows into American risk assets.
- A year-long dislocation between gold and US 10-year yields has widened further this past month, with yields showing renewed strength amid worries the November election result may stoke concerns about looser fiscal policy, which may deepen the deficit and rekindle inflation.
Recent commodity articles:
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
30 Sept 2024: COT: Fed and PBOC trigger largest weeklyl surge in commodities demand in a decade
27 Sept 2024: Commodity weekly: Industrial metals gain strength during a week of crude weakness
26 Sept 2024: Crude prices drop again as Saudi and Libya supply concerns grow
24 Sept 2024: Fed and PBOC add momentum to commodities market rebound
23 Sept 2024: COT: Dollar short reduced; Investment metals see strong demand ahead of FOMC
20 Sept 2024: Commodity weekly: Commodities boosted by bumper rate cut
20 Sept 2024 Video: Gold or silver, which metal will perform the best
17 Sept 2024: With gold reaching new heights, silver shows potential
16 Sept 2024: COT: Record short Brent and gas oil positions add upside risks to energy
11 Sept 2024: Crude slumps amid technical selling and recession fears
10 Sept 2024: US Election: will gold win in all scenarios
9 Sept 2024: COT: Crude long cut to 12-year low; Dollar short more than doubling
5 Sept 2024: Can gold overcome the 'September curse'?
4 Sept 2024: Wheat rises on European crop worries
3 Sept 2024: Chinese economic woes drag down crude oil and copper
2 Sept 2024: COT: Commodities see broad demand as the USD slumps to a net short
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