Gold’s rally continued in mid-October, fuelled by global economic uncertainties such as rising tensions in the Middle East, looming US election uncertainties, and de-dollarisation.
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 spur increased demand for gold-backed ETFs.
This trend is likely to draw in underinvested asset managers in the West who have been net sellers since May following aggressive Fed rate hikes, according to Saxo’s head of commodity strategy.
Commenting on gold’s recent price movements, Ole Hansen noted in a market update that the fear of missing out is also compelling some investors to join the rally.
“Gold’s record-breaking rally continues, and following another shallow mid-month correction that saw buyers return ahead of US$2,600, spot bullion broke above US$2,700 to record its sixth record high this year,” Hansen said.
“Having already jumped by almost 40 per cent in the past 12 months, there is little doubt that many would-be investors balk at the prospect of paying record prices, but the fear of missing out on the continued rally ultimately forces many to get involved.”
Acknowledging that the ability to forecast the next level is increasingly down to guesswork, Hansen highlighted predictions that gold could target US$3,000, referencing a recent poll at the London Bullion Market Association gathering, which forecasts gold reaching US$2,917.40 within a year.
Similarly, Gary Dugan, chief executive officer of The Global CIO Office, expects the price of gold to keep gaining, but he is of the opinion that sharp increases in its value in recent quarters probably have more to do with the ongoing diversification of central bank 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 being active buyers of the yellow metal. For central bankers, higher prices are not a reason for holding back from purchasing gold but more a vindication of why they are buying,” Dugan said.
“This past week, several EM central bankers spoke at the London Bullion Market Association’s conference in Miami, reiterating their wish to continue diversifying their currency reserves through gold purchases.”
Noting that there isn’t “much sense in ascribing a ’fair value’ to gold”, Dugan said: “We believe gold warrants a significant strategic allocation of at least 5 per cent in a multi-asset portfolio.”
The gold price rally of 2024 hit new highs over the month of September, notching new records on eight separate occasions, according to the World Gold Council (WGC).
At the time, the WGC noted that this “stellar” month for gold was driven by a drop in the US dollar as the Federal Reserve began its easing cycle with a 50 basis points rate cut, alongside rising geopolitical tensions in the Middle East.
Looking ahead, the WGC highlighted a strong potential for a gold-friendly environment.
“Against a backdrop of high equity-bond correlation and shifting macro phases, the outlook for gold offers investors diversification and a hedge against broader portfolio risk,” it said.
“Add to this support from central bank buying, rising demand from key markets like India, and the return of Western ETF investors, and the recent escalation in Middle East tensions, gold is well positioned to benefit from these evolving market conditions.”
Speaking to InvestorDaily on Monday, WGC's Shaokai Fan added: "Gold’s price performance has caught the world’s attention. Lower interest rates, geopolitical uncertainty, and increased investor focus have all been catalysts for the rally.
"While WGC does not forecast the gold price, easing policy rates have historically been positive for gold. As central banks continue to lower rates, investors are further incentivised to turn to gold as the cost of holding the metal decreases".
