Gold Monthly View for October 2024

The bull run that commenced in the latter half of September persisted throughout October, culminating in gold reaching a new all-time high of $2790.41 per troy ounce on 31 October 2024. However, this up move came with its own volatility with sharp pull backs on occasions, somethings that’s like to stay in the near term. The inability to surpass the $2800 per troy ounce mark led to some swift correction in gold prices. The precious metal has demonstrated remarkable strength this year amid a confluence of global factors driving investor demand. Geopolitical political conflicts, Federal Reserve interest rate normalization, continued strong demand from global central banks, and uncertainties about the outcome of the upcoming presidential election and the possibility of more fiscal stimulus were the primary components driving gold higher.

Interest rates have been a particularly significant factor for the increase in the gold price so far this year. Market expectations, as reflected in the CME's FedWatch tool, now indicates a 97.9% probability of a 25-basis-point rate cut in November. Market sentiment has undergone a notable transformation in recent weeks. Previously, there was considerable speculation about the possibility of a substantial 50 basis point rate cut. Strikingly, the probability of a 50-basis point cut has been reduced to zero.

While inflation in the US seems under control, it could remain sticky at current levels or even inch up depending on the policies pursued by the elected president. On the other hand, US economy continues to throw up mixed signals. A hard landing or recession will require the Fed to ease aggressively, which will be bullish for gold as the opportunity cost of holding the metal goes down. Personal income and spending is softening, along with the manufacturing indices faltering in recession territory. On the other hand, a soft landing for the US economy could result in modest rate cuts and some cooling off in gold prices which have currently priced in another 150 basis points of rate cuts by end of 2025.

An unexpectedly weak U.S. employment report that significantly missed even the most conservative estimates has amplified concerns on growth. The U.S. Bureau of Labor Statistics reported a mere 12,000 new jobs added in October, plummeting from September's revised figure of 254,000. This fell dramatically short of consensus forecasts, which had already been tempered due to anticipated impacts from recent labor strikes and hurricane disruptions. Bloomberg's estimate of 105,000 and FactSet's projection of 120,000 both proved overly optimistic. Indeed, strikes and hurricane may have contributed to an undercount of actual job creation, though the extent won't be clear until future revisions. Despite the weak employment data, gold faced headwinds from a strengthening dollar and rising Treasury yields.

The downsides will be capped as geopolitical issues weigh on risk sentiment and keep investors interested in assets like gold. The conflict in the Middle East threatens to become a full-fledged war, the Russia-Ukraine war, in its 3rd year, is showing no signs of waning and relations in the Korean peninsula remain tense. The impact of these conflicts on energy infrastructure and supply chains could be inflationary, which will bode well for gold.

Fundamentally, the continuing deficits and unsustainable debt in the US is gradually eroding confidence in the dollar as reflected in dollar’s share of global reserves. Given the lack of alternatives, gold has been a key beneficiary of this diversification trend. Add to it the complexities of the US presidential election outcome, both Kamala Harris and Donald Trump are espousing policies that will be bearish for the US$ and bullish for gold. Harris’s policies revolve around capital gains taxes, probably higher energy costs and weaker economy. While trump would fire his tariffs bazooka and torpedo international trade leading to inflationary prospects and an incentive to move away from the dollar. While their policies have substantial differences, US debt is likely to move higher, making case for a monetary asset like gold.

Central banks, particularly in emerging markets, have been aggressive buyers as they seek to reduce their dependence on the U.S. dollar. This sustained institutional demand has provided significant support to gold prices throughout the year.

Any correction in gold due to volatility in rate expectations which are probably running a tad ahead of expectations, would provide an opportunity for investors to build their gold allocation. Medium term outlook for the precious metal looks promising given the US interest rate cycle has already turned, and confluence of macro-economic factors impacting growth, markets and hence central bank action, support gold from here on.

The trend of investments into gold and diversification of reserves continues. We believe this trend is likely to continue this year amid geopolitical uncertainties in middle east, elections in Europe, US and major economies, central bank buying to diversify its reserves and with continued fragmentation in world economy, would continue to support gold prices.

Source: World Gold Council

Above article is authored by Quantum.

View All