Gold’s Record-Breaking Rally
Gold is experiencing a remarkable rally, surpassing $2,500 an ounce and setting new records. This surge is fueled by expectations of Federal Reserve rate cuts, a decline in traditional yield drivers, and renewed investor interest. Jay Hatfield, CEO of Infrastructure Capital Advisors, highlights the significance of Chair Jerome Powell’s Jackson Hole speech, which signaled potential rate cuts and has been pivotal for gold’s recent performance.
Factors Driving Gold’s Rise
Gold has been a standout performer among major commodities this year. Its ascent in the first half of 2024 was driven by strong central bank and Asian demand, which mitigated the impacts of a rising US dollar, higher Treasury yields, and bullion ETF outflows. With these headwinds now potentially reversing, gold’s appeal is strengthening.
Rajeev De Mello, global macro portfolio manager at GAMA Asset Management SA, notes that falling real yields and a weakening dollar make gold an attractive asset. Spot gold has risen more than 20% in 2024, with banks like Goldman Sachs Group Inc. forecasting prices could reach $2,700 an ounce.
Investor Sentiment and ETF Demand
Investor sentiment towards gold is increasingly bullish. Hedge funds and speculators are ramping up their bullish positions, with net-long bullion positions on Comex hitting a four-year high. Demand for gold-backed ETFs is also rebounding, with SPDR Gold Shares seeing its longest inflow streak since mid-2020.
Citigroup Inc. projects significant ETF inflows over the next six to 12 months, supported by looser monetary policy and potential volatility from recession risks. They forecast gold could reach $3,000 by mid-2025. As of 9:18 a.m. in New York, spot gold traded at $2,525.73 an ounce.
Challenges and Future Outlook
Despite Western investors’ renewed interest, gold prices may face challenges from weakened demand in Asia and China’s recent pause in monthly purchases. Nonetheless, UBS Group AG anticipates significant ETF flows and speculator demand when the Fed implements its first rate cut, projecting gold prices at $2,600 for the last quarter of this year. Increasing geopolitical risks are expected to further drive demand for gold as a portfolio hedge.
Ryan McIntyre of Sprott Inc. emphasizes that gold ETFs are becoming a crucial part of the gold investment narrative, highlighting the growing role of physical gold investments in the market.
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