Quarterly Outlook
Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
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Blowout top leaves Gold in consolidation mode
Ole Hansen
Head of Commodity Strategy
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Key points:
- In the commodities market, the spotlight remains firmly on gold, which this week surged to a new all-time high of USD 3,500 before suffering a violent 5% correction.
- The latest market turbulence unfortunately unfolded during the Easter period, when several trading centres were closed, leaving liquidity at a premium.
- From a technical perspective, the blowout top around USD 3,500 and sharp reversal has, in the short term, raised the prospect of consolidation with the first level of support at USD 3,292.
- Also, in this a non-scientific observation on gold and the need to watch activity in Asia, the biggest source of demand throughout the last month.
The spotlight in the commodities market remains firmly on gold, which this week surged to a new all-time high of USD 3,500—marking an impressive 33% year-to-date gain—before suffering an equally violent 5% correction. This rapid ascent means the yellow metal has already reached our recently upgraded price forecast far earlier than anticipated, but it also increasingly raises questions about the yellow metal's ability to continue higher without, at a minimum, going through another period of consolidation. Gold’s meteoric rise underscores a broader trend in the commodities space, which continues to be heavily influenced by macroeconomic and geopolitical developments—particularly the intensifying trade war between the United States and China. As the world’s two largest economies clash, concerns mount over its potential drag on global growth and risk of rising inflation. In addition, the weaker US dollar, de-dollarisation from several central banks, and concerns about the fiscal debt situation in the US have also been key components behind the year-long gold rally. The latest market turbulence unfortunately unfolded during the Easter period, when multiple countries and trading centres were closed, leaving liquidity at a premium, forcing bigger-than-normal market reactions to the news flow, which included renewed political pressure on the US Federal Reserve. President Trump once again challenged the Fed's independence by publicly urging a rate cut—a move that rattled financial markets. Stocks slid further, and the US dollar fell to a three-year low. However, the very negative market reaction to the attack, which ultimately could have triggered a financial crisis, saw Trump do a 180, saying he had no intention of firing Jay Powell—a stance that also gave the President an opportunity to position Powell as a convenient scapegoat for a looming economic slowdown in the US. Together with a softening stance on China tariffs and renewed hopes for a peaceful solution to the Russia-Ukraine war, the market got an injection of adrenaline, which helped send stock markets sharply higher while the US dollar regained some ground. Having benefited greatly from market worries, gold went in the opposite direction, losing 5% within a short period of time as fear-of-missing-out and momentum trades exited the market. From a technical perspective, the blowout top around USD 3,500 and sharp reversal has, in the short term, raised the risk of a deeper correction. However, using Fibonacci levels as a guide, the gold price has so far managed to find support at USD 3,292, the 0.382 retracement level, which for now signals a weak correction within a strong uptrend. A deeper correction could see traders focus on USD 3,228 and the big one at USD 3,164, a break below which could signal a return to the USD 3,000 area.
A non-scientific observation on Gold
Over the past 20 years, when gold has become significantly stretched—either upward or downward—relative to its 200-day moving average, a correction has typically followed. Yesterday’s dramatic surge to USD 3,500 saw the spot price trade more than 20% above its 200-day moving average. If historical patterns hold, gold may now enter a prolonged consolidation phase to allow the moving average to catch up. That said, central bank demand—one of the primary drivers since 2022—is unlikely to respond to technical signals like these, potentially preventing a repeat of past behavior. In the days ahead: Watching Asia’s reaction
In the coming days, it will be important to monitor the response from traders and investors in Asia—a key and consistent source of demand in recent months. Data from Morgan Stanley, which tracks “pit” versus “non-pit” trading activity in COMEX gold futures, shows a notable divergence: over the past month, gold futures declined by 5.9% during the “pit” session (08:20 to 13:30 EST), while gaining 14.7% during the “non-pit” session, which includes Asian and European morning trading.
While the short-term outlook for gold has become more challenging—particularly if the U.S. President adopts a less aggressive tone—some nervous calm could return to markets as we await greater clarity on the impact of tariffs on economic growth and inflation. We continue to maintain a positive long-term view on gold. However, having reached our USD 3,500 target, further upside beyond may require a worsening of economic or political conditions.
A reminder of some of the major supportive drivers for gold.
US Fed Funds rate expectations: Market participants closely watch interest rate expectations set by the Federal Reserve, as they heavily influence the attractiveness of gold. Currently, the futures market is pricing in the possibility of a 75–100 basis point rate cut before year-end, suggesting a more accommodative monetary policy. Lower interest rates reduce the opportunity cost of holding gold (which doesn’t pay interest), thereby supporting its price.
Investment demand for “paper” gold through futures and exchange-traded funds (ETFs): The demand for gold-backed financial products depends on technical market factors, such as price momentum, as well as macroeconomic indicators. In addition, a key factor for investors in ETFs is the cost of holding a non-yielding assets like gold, with the prospect for lower funding cost and recession worries boosting demand. Current known holdings in bullion-backed ETFs stands at 2773 tons, up 269 tons from last May but still well below the 2020 record peak at 3453 tons.
Rising US inflation expectations: Investors often turn to gold as a hedge against inflation. Recently, falling real yields (nominal yields minus inflation expectations) across the US Treasury yield curve have signaled growing concerns about future inflation. As inflation expectations rise, the real return on fixed-income assets decreases, increasing the relative appeal of gold.
Geopolitical risks: Global instability tends to push investors toward safe-haven assets like gold. A recent correlation between defense stocks and gold suggests that as geopolitical tensions rise—such as conflicts, wars, or diplomatic strains—investors seek safety in gold, thereby supporting its price. In addition, the current trade war adds downside risks to growth while lifting the geopolitical temperature, especially between the US and China, the world's two biggest economies.
Central bank demand amid continued focus on reducing dependency on the USD: A growing number of central banks are diversifying their reserves away from the US dollar, often turning to gold as a neutral reserve asset. Notably, China, India, Turkey, and Russia have been leading this trend. In the last three years to 2024, central banks bought more than 1,000 tons in each year, a process that looks set to continue in 2025 and beyond, thereby underpinning the market as supply is being removed from the market. Strong Asian demand, particularly from Chinese investors, driven by concerns over domestic economic instability, weak real estate and stock markets, and as a hedge against potential Renminbi devaluation amid tariff-related export pressures.
Recent commodity articles:
22 April 2025: Commodities return Why allocation matters
16 April 2025: Whats next as gold hits our USD 3300 target
15 April 2025: COT Reports show hedge funds racing to cash post-Liberation Day
11 April 2025: Commodities weekly As chaos reigns whats next for markets
10 April 2025: YouTube Interview: Gold, silver, copper, oil - prices, supply, demand in 2025
8 April 2025: Golds deleveraging pullback fails to shake supportive outlook
8 April 2025: Golds deleveraging pullback fails to shake supportive outlook
7 April 2025: COT on Forex and Commodities - April 7 2025
4 April 2025: Commodities weekly Tariff-led recession pain triggers sharp reversal
3 April 2025: Tariff-related recession fears ignite widespread commodities selloff
2 April 2025: Commodity Outlook: Commodities rally despite global uncertainty
31 Mch 2025: COT Report: Ongoing USD selling amid mixed week for commodities
26 Mch 2025: Commodities show strength in Q1, led by a select few
25 Mch 2025: Crude oil Sanctions threat counters tariff-driven demand worries
24 Mch 2025: COT on Forex and Commodities - 24 March 2025
21 Mch 2025: Commodities weekly: High-flying precious metal sees profit taking
19 Mch 2025: Has the gold express already left the station?
17 Mch 2025: COT Report: Silver and copper stands out in week of energy weakness
14 Mch 2025: Gold surges past USD 3,000 as haven demand grows
12 Mch 2025: Tariffs and the energy transition: Key drivers of copper demand
11 Mch 2025: Gold holds steady despite deleveraging risks in volatile markets
10 Mch 2025: COT Report: Wholesale reductions in speculators' USD and commodity longs
7 Mch 2025: Commodities Weekly: Tariffs, trade tensions, fiscal bazooka, and Ukraine
5 Mch 2025: Tariff threat disconnects HG copper from global market
4 Mch 2025: Stagflation and geopolitical tensions fuel renewed demand for gold
3 Mch 2025: COT Report: Broad retreat sees WTI longs slump to 15-year low
Podcasts that include commodities focus:
23 April 2025: Trump going soft on tariffs versus the direction of travel.
11 April 2025: US and China are slipping into an economic war
4 April 2025: Markets melts down as recession risks go global
1 April 2025: Bracing for Liberation Day
25 Mch 2025: Did Trump just blink?
18 Mch 2025: US market found support, but how durable will it be?
14 Mch 2025: Is silver set to shoot the lights out?
10 Mch 2025: US un-exceptionalism is the theme
7 Mch 2025: US bear market risks ratchet higher. EUR train has left the station
4 March 2025: Are we on the verge of a big whoosh?
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