(Bloomberg) — Gold is in record form, surging past $2,500 an ounce on expectations that the Federal Reserve is poised to cut U.S. interest rates.
The precious metal's 21% year-to-date rise has made it one of the top performing commodities in 2024 and banks including UBS Group AG and ANZ Group Holdings Ltd. say there is still room for further gains.
Prices are heading toward $2,700 an ounce around mid-2025, said Wayne Gordon, commodities strategist at UBS Global Wealth Management, citing the Fed's shift, central bank buying and demand for portfolio protection.
With Fed Chairman Jerome Powell set to provide input on the outlook for US monetary policy Jackson Hole symposium later this week, here are five charts that outline some of the key drivers that will shape the metal's outlook.
Real prices
Gold's recent rally has come largely from expectations that US policymakers will start cutting rates soon, with a first cut at their meeting next month. This narrative has dragged real rates lower, creating a more favorable environment for non-interest-paying silver bullion.
The latest moves – higher gold prices and lower rates – signal that traditional macros, such as bond yields, are coming back to the fore. Earlier this year, gold or silver bullion advanced even as yields rose, an unusual pattern that surprised seasoned analysts. of DISRUPTIONS at that point it was mainly due to strong purchases by the central bank, especially in emerging markets.
Positioning of the Fund
As gold has risen, hedge funds and speculators are getting more involved. Net bullish bets on Comex futures remain near four-year highs set in mid-July, according to data from the Commodity Futures Trading Commission. A 9% increase in open interest last week implies that investors are becoming more bullish on bullion, rather than simply closing short positions.
However, in the near term, the positioning now looks inflated and funds may be vulnerable, according to Daniel Ghali, senior commodities strategist at TD Securities. The next catalysts for a repricing of the Fed's outlook will come in Jackson Hole, followed by upcoming US wages data, Ghali said.
ETF investors
A similar scenario may be playing out in gold or silver bullion-backed exchange-traded funds, with signs of greater interest in recent weeks. While gold prices rose sharply in March and April, ETF holdings continued to see net outflows, with a global ratio hitting its lowest level since 2019 in mid-May. Since June, however, the tide appears to have turned, with ETFs posting two months of net inflows.
OTC requirements
Demand in the over-the-counter market – where transactions are made through dealers or between buyers and sellers directly, without an exchange or clearing house – can be difficult to track, but has been a significant feature this year.
Strong physical buying, particularly by family offices in Asia, helped gold consumption register second best quarter in at least 25 years, according to the World Gold Council. The producers' association says that further growth in demand in the OTC market, which also includes some central bank purchases, is expected to be a key driver of the gold rally.
Shanghai Premium
While many indicators look positive, some do not, including readings from China. At the beginning of this year, a shopping spree from local retail investors – along with purchases by the People's Bank of China – helped support prices. The PBOC has since stopped buying. Additionally, gold premiums in Shanghai have weakened, turning negative in July and August, indicating soft request.