Gold’s rally continued in mid-October, fueled by global economic uncertainties such as rising tensions in the Middle East, looming uncertainties regarding the US elections and dedollarization.
Analysts predict that upcoming rate cuts from the Federal Reserve and other central banks, which will reduce the cost of holding non-interest-bearing investments, will further boost demand for gold-backed ETFs.
This trend is likely to attract underinvested asset managers in the West who have been net sellers since May following the Fed’s aggressive rate hikes, according to Saxo’s head of commodities strategy.
Commenting on recent gold price movements, Ole Hansen noted in a market update that the fear of missing out is also forcing some investors to join the rally.
“Gold’s record rally continues, and after another slight mid-month correction that saw buyers return before US$2,600, spot bullion surpassed US$2,700 to record its sixth record this year. , Hansen said.
“Having already surged almost 40 percent in the past 12 months, there is no doubt that many potential investors are balking at the prospect of paying record prices, but the fear of missing out on the continued rally ultimately compels many to get involved.»
Acknowledging that the ability to predict the next level is increasingly a matter of guesswork, Hansen highlighted predictions that gold could aim for US$3,000, referencing a recent poll taken at the London Bullion rally. Market Association, which predicts gold will reach US$2,917.40 within a year.
Similarly, Gary Dugan, managing director of the Global CIO Office, expects the price of gold to continue to rise, but he believes that the sharp increases in its value in recent quarters probably have more to do with the ongoing diversification of central banks. reserves, particularly in emerging countries.
“The World Gold Council reported record levels of central bank buying in the first half of this year, with 14 emerging market central banks active buyers of the yellow metal. For central bankers, rising prices are not a reason to refrain from buying gold, but rather a justification for why they are buying,” Dugan said.
“Last week, several central bankers from emerging countries spoke at the London Bullion Market Association conference in Miami, reiterating their desire to continue diversifying their foreign exchange reserves through the purchase of gold.”
Noting that there is “not much sense in assigning a ‘fair value’ to gold,” Dugan said: “We believe gold warrants a significant strategic allocation of at least 5 percent in a multi-asset portfolio. »
The 2024 gold price rise reached new highs during the month of September, recording new records eight times, according to the World Gold Council (WGC).
At the time, the WGC noted that this “exceptional” month for gold was due to the decline in the US dollar as the Federal Reserve began its easing cycle with a 50 basis point rate cut, alongside to the rise of geopolitical tensions in the Middle East.
Looking ahead, the WGC highlighted strong potential for a favorable environment for gold.
“Against a backdrop of high stock-bond correlation and changing macroeconomic phases, the outlook for gold provides investors with diversification and a hedge against broader portfolio risk,” he said.
“Add to this support from central bank buying, growing demand from key markets like India, the return of Western ETF investors and the recent escalation of tensions in the Middle East, gold is well positioned to benefit of these changing market conditions. »
“While WGC does not forecast the price of gold, the easing of policy rates has historically been positive for gold. As central banks continue to cut rates, investors have more incentive to turn to gold. ‘gold as the cost of holding the metal decreases’.
