Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Resilient gold bulls drive price to fresh record above USD 2500
Ole Hansen
Head of Commodity Strategy
Key points
- An almost uninterrupted rally since last October has taken gold to a fresh record, and up +20% year-to-date.
- Demand from family offices, rich individuals, central banks and price momentum keep gold supported
- ETF investors are showing signs of life as the first US rate cut draws nearer
Gold’s almost uninterrupted rally from a USD 1,810 low last October continues, culminating on Friday when the yellow metal rose above USD 2,500. Having reached our already once revised higher target for 2024, the big question is whether gold has more fuel left in the tank to drive it even higher?
The answer to that, in our opinion, is a yes for various reasons, most of which are unlikely to go away anytime soon. The most important being:
- Geopolitical risks related to Russia/Ukraine, the Middle East and not least uncertainty regarding the November US president election.
- Strong retail demand in China amid the desire to park money in a sector seen as relatively immune to a struggling economy and property woes and the outside risk of the Yuan devaluing.
- Continued central bank demand amid geopolitical uncertainty and de-dollarisation, and not least gold’s ability to offer a level of security and stability that other assets may not provide.
- The US presidential election outcome also a cause for concerns as both candidates are prepared to spend money they haven’t got, thereby lifting the US debt levels further.
- Rising debt-to-GDP ratios among major economies, not least in the US, raising some concerns about the quality of debt. A worry that saw record demand in Q2 from rich individuals and wealthy family offices through the OTC market.
- In addition, we are now increasingly seeing the positive impact of an incoming US rate cutting cycle, a period that historically has seen the yellow metal perform well.
- Rate cuts could see interest rate-sensitive investors return to gold via ETFs, which have seen consistent net selling since 2022 when the FOMC began its aggressive rate-hiking campaign.
While leveraged investors, such as hedge funds, joined the rally early back in February and March when a technical breakout occurred above USD 2,200, we have only recently seen a small pick-up in demand from investors in exchange-traded funds. As mentioned, we believe demand is likely to pick up as the US Federal Reserve cuts rates, thereby lowering the cost of holding a position in gold and commodities in general.
Gold has reached USD 2,500, and it may—as per the chart—potentially offer some short-term resistance while traders turn their attention to Fed Chair Powell's speech at Jackson Hole on 23 August, where traders and investors will be looking for confirmation that the FOMC is indeed moving towards the first of several rate cuts next month. A cut will be dependent on whether incoming economic data continues to support the recent softness seen in key economic measures. In the short term, traders will be looking for support around USD 2,475–80, followed by USD 2,400.
Recent commodity articles:
19 Aug 2024: COT Buyers return to crude as gold stays strong; Historic yen buying
16 Aug 2024: Commodities weekly: Gold strong as China weakness drags on other markets
9 Aug 2024: Commodities weekly: Calm returns to markets, including raw materials
8 Aug 2024: Sentiment-driven crude sell-off eases, allowing traders to focus on supply risks
7 Aug 2024: Limited short-selling interest observed during copper's recent aggressive correction
6 Aug 2024: Video: What factors are fueling the current market turmoil and gold's response
5 Aug 2024: COT: Broad commodities sell-off gains momentum; Forex traders seek JPY and CHF
5 Aug 2024: Commodities: Position reduction in focus as volatility spikes
2 Aug 2024: Widespread commodities decline in July, with gold as the notable exception
31 July 2024: Crude's month-long slide halted by fresh Mideast worries
30 July 2024: Record demand explains gold's current resilience
29 July 2024: COT: Energy and metals selling cuts hedge fund long to four-month low
4 July 2024: Sluggish US economic indicators boost demand for gold and silver
4 July 2024: Podcast Special: Quarterly Outlook - Sandcastle Economics
2 July 2024: Quarterly Outlook - Energy and grains in focus as metals pause
1 July 2024: COT: Crude long builds ahead of Q3 while grains selling accelerates
28 June 2024: Metals and natural gas propel commodity sector to quarterly gain
26 June 2024: Crude seeks support from seasonal demand strength
24 June 2024: Copper's resilience despite China weakness
18 June 2024: Precious metals go through prolonger period of consolidation
17 June 2024: COT: Dollar long jumps; Funds start rebuilding crude long
14 June 2024: Commodity weekly: Energy sector gains counterbalance metal consolidation
13 June 2024: Oil prices steady amid divergent OPEC and IEA demand projections
10 June 2024: COT: Brent long cut to ten-year low; metals left exposed to end of week slump
3 June 2024: COT: Crude length added before OPEC+ meeting; gold and copper see profit-taking
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