Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Global Head of Macro Strategy
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Will the US election result spark a gold correction?
Ole Hansen
Head of Commodity Strategy
Key points
- Gold's record-breaking rise continues ahead of the US election, seen as a major risk event that could trigger a market reaction
- The lack of response to the Middle East de-escalation supports the view that the latest strength is increasingly being seen as a hedge against the US election
- Depending on the outcome, there is an increased risk of a USD 100+ correction next week
- Options market showing some favouritism towards silver, a metal that trades relatively cheaply compared to gold and around one-third below the 2011 record at USD 50
Gold's record-breaking rise continues ahead of the US election, seen as a major risk event that could trigger a market reaction, especially if results differ from expectations of a Trump victory. Gold is up 5% this month and 34% on the year, second only to silver, which has surged 42.3%. These rallies prompt concern over potential unsustainable gains and a possible peak.
Currently, gold and silver show no euphoria—only strong rallies as investors seek safe assets amid concerns over fiscal instability, safe-haven demand, geopolitical tensions, de-dollarisation driving strong demand from central banks, Chinese investors turning to gold amid record-low savings rates, and recently, as mentioned, increased uncertainties surrounding the US presidential election safe-haven demand, geopolitical tensions, central bank de-dollarization, and increased demand from Chinese investors due to low savings rates and property market concerns. Additionally, rate cuts by the Fed and other central banks are reducing the cost of holding non-interest-bearing assets like gold and silver.
It is also worth noting the lack of response to the Middle East de-escalation seen in crude oil prices—which slumped the most in two years on Monday—leading us to conclude that the latest strength is increasingly being seen as a hedge against a potential “Red Sweep” at the 5 November US election, where one political party, in this case, the Republicans, controls both the White House and Congress. This scenario has lifted US bond yields amid concerns about excessive government spending, pushing the debt-to-GDP ratio higher, while fuelling inflation fears through tariffs on imports as well as geopolitical risks.
Besides the election, the market maintains a steadfast belief that the US Federal Reserve will announce a 25 basis-point rate cut at the 7 November meeting, further supporting demand in gold-backed ETFs. Following two years of net selling, total holdings in bullion-backed ETFs hit a low point in May before Western ETF investors finally returned as buyers, having been net sellers since the Federal Reserve began its aggressive rate-hiking campaign back in 2022. Read more about demand trends in the just published “Gold Demand Trends Q3 2024” from the World Gold Council.
Nothing ever goes in a straight line, and having rallied as much as it has, gold can still run into a deep correction—potentially after 5 November should the election result not deliver the keys to the White House and Congress to one party. However, as long as the mentioned reasons for holding gold do not go away, the prospect for even higher prices remains. With that in mind, we see the risk of a USD 100+ correction next week; however, as per the chart below, a correction will find support at USD 2,685, while a break below USD 2,600 is likely needed to trigger an even bigger move, which at that point would be led by long liquidation from hedge funds holding a 24-million-ounce long in the futures market.
What is the options market telling us?
Looking at the top ten most traded options strikes in gold and silver futures in the last week, we find, unsurprisingly, an overriding focus on bullish strategies. However, it is interesting to note some favouritism towards silver, a metal that trades relatively cheaply compared to gold and around one-third below the 2011 record at USD 50. As per the table, we find eight of the ten most traded strikes are calls, most notably the USD 35 and USD 40 calls, both expiring in 26 days on 25 November. In gold, a few put strikes have started to emerge as traders hedge against a setback following the yellow metal’s record-breaking run. While the most traded strike is the USD 2,900 call, also expiring on 25 November, both the USD 2,650 and USD 2,600 puts have attracted some demand 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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