- Summary:
- Gold price has had a somewhat “perfect” alignment of fundamentals in 2024. Despite brief interruptions, the metal could yet keep rising.
Gold has had stellar performance this year, hitting multiple all-time highs and gaining 24.6 percent year-to-date. The setup has been near-perfect for the yellow metal-geopolitical tensions in the Middle East, the Russia-Ukraine war, and uncertainty surrounding US and China economies.
It could have been better for the gold price. However, the US economy printed out mixed macroeconomic data that somehow muddied the waters for the precious metal. On the other hand, China helped propel prices higher with an 18-month gold buying streak by its central bank.
By the time markets woke up to the reality that the US economy wasn’t doing so well, it was already August, and China had already paused its purchases. That helped cool down the gold price uptrend.
At some point, there was a stubborn rise in gold prices, a rise in US treasury bond yields and strengthening of the US dollar- all happening concurrently! That was the clearest symbol yet that the markets could have created a bubble. And in early August, there were fears that a recession could be in the works.
On August 5, the Nikkei Index lost 4,441 points, the greatest single-day loss since 1987’s Black Monday event. Meanwhile, the NASDAQ Composite went down by 3.4%, and the S&P 500 lost 3% percent. Gold price lost -1.3% that day and the DXY Index, which measures the dollar’s strength was down by -0.53%. That was a strange outing where financial markets and safe haven assets lost significantly on a single day.
A case for higher gold prices
Recent events have signaled potential “normalisation”. The rising prospects of deep interest rate cuts has seen gold prices rise significantly from the second week of August until now. Meanwhile, the dollar has weakened significantly, with the DXY touching YTD lows this week. Yields on US treasury bonds have also declined sharply, with the benchmark 10-year bonds returning 3.689 as of this writing.
Notably, gold prices have hovered above the $2,279 per ounce mark, below the double-bottom pattern for much of the time since mid-April. Therefore, I expect that to serve as the lower support for the rest of the year. On the upside, action above the psychological $2,400 mark should favour the bulls to potentially register new all-time-highs.
Meanwhile, China could return to the gold market and continue with its purchases to cushion its economy, which continues to struggle. Gold price could also benefit from the Middle-East and Russia-Ukraine conflicts which seem to be dragging on.
Hezbollah’s increasingly central role in the Israel-Hamas war has raised the stakes, while Ukraine’s incursion into Russian territory could add geopolitical premium on gold price. Furthermore, with as many as two Fed interest rate cuts potentially in the pipeline, more fuel could be added to the gold rush.
