Head of Commodity Strategy
Summary: Gold remains range bound around $1500/oz and on the lookout for the next driver. Gone for now is the roaring bond engine which back in June helped the yellow metal break out of its multi-year range.
Gold has now spent more than two months trading sideways around $1500/oz. From a chart perspective the lower highs point to fading momentum. The same formation however could also signal the emergence of a bull-flag which, if broken above $1510/oz, could see it resume its rally. A deeper correction to $1450/oz or even $1415/oz would do little to remove the long-term bullish view many currently hold on gold. Only a break below $1380/oz, the old range top and 61.8% retracement of the June to September rally could change this view.
Gone for now is the roaring bond engine which back in June helped the yellow metal break above $1380/oz and with that out of its multi-year range. But despite seeing bond yields stabilize following their rapid decent, U.S. stocks near record high and the outline of a trade deal emerging, gold has nevertheless managed to avoid a major correction.
An indication that it remains in demand, not only from short term speculative players – who otherwise would have tried to send the market lower to squeeze out longs - but also real money investors looking for diversification amid a slowing global growth outlook and various geo-political risks.
At the annual London Bullion Market Association conference just held in Shenzhen, China, the attendees were asked in survey to say where gold, silver, platinum and palladium would be trading by this time next year. The results were the following:
While not that surprising to see expectations for higher prices it was the sharp recovery in silver and platinum that caught my attention. Such out-performance is likely to assume that fiscal stimulus programs may emerge to replace failed central bank experiments with low and negative interest rates.
The below charts show some of the current drivers impacting the price of gold and with that also silver and to a lesser extent platinum. The recent rise in real yields and reduction in global negative yielding debt from 17 to the current but still formidable 13.4 trillion dollars have both helped reduce but not remove the appetite for investment metals.
Total holdings in bullion backed exchange-traded funds have seen a relentless rise since May and is currently just 26 tons below the December 2012 record. Hedge funds maintain a near record net-long through futures and it is the potential reduction from this category of traders that currently poses the biggest challenge.
Following a period of consolidation, we see gold move higher to reach $1550/oz by yearend before moving higher into 2020.
Our main reasons for maintaining a bullish outlook for gold and with that also silver and platinum, given relative value plays, are:
The end of the road
Emboldened by surging crude oil prices, Saudi Arabia makes waves on the international stage, as Crown Prince Mohammed bin Salman manages to create a World Champions League, after buying the UEFA Champion League franchise.
As the world embraces GLP-1 obesity wonder drugs, the people next in line to get a prescription stop caring about dieting and exercising, figuring that the drug will later solve all of their weight-related health problems.
With the US budget deficit spiraling above 10% of the GDP, the government is desperate to foster demand for US Treasuries. Under intense pressure from the White House, Congress makes income from government bonds tax-free.
After a criminal group deploys the most deceptive AI deepfake ever seen, generative AI becomes a national security threat. With public distrust soaring, governments crack down with harsh new laws, puncturing the AI hype.
To fix the divergence in the global trade and financial system, the largest deficit countries unite to negotiate new world trade terms. For surplus countries, the reset of the global economic model is a painful adjustment.
As discontent with Biden and Trump rises to fever pitch, Robert F. Kennedy Jr sees his support rising inexorably in the polls. On November 5, Kennedy wins the US presidential election, ushering in a new era in US politics.
Stepping up Japan's economic transformation in 2024, PM Kishida brings in a host of populist policies to boost domestic demand. As the GDP growth rate hits 7%, the BoJ is forced to abandons its yield curve control policy.
As people wake up to how little tax Europe’s billionaires are actually paying, the EU Commission implements a wealth tax of 2%. The tax sends shockwaves through Europe's luxury industry, with luxury giant LVMH plunging 40%.
