Macro: Sandcastle economics
Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.
Head of Commodity Strategy
Gold continues to trade cautiously around USD 2500, and in doing so, is trying to break the cycle of negative September returns, a seasonal trend which has seen gold trade lower in all but one of the last ten Septembers. Having suffered a setback to, but not through, support at USD 2470, the yellow metal has bounced back, supported by a global economic slowdown that has raised the downside risk for growth-dependent commodities and equities sectors, but also lifted the prospect for a more aggressive rate-cutting cycle from the US Federal Reserve, which is due to meet to discuss rates on 18 September.
With inflation showing signs of stabilising, the FOMC, which operates under a dual mandate set by Congress focusing on stable prices and maximum employment, is likely to shift its focus towards employment, and increasingly to signs that the job market is cooling. With that in mind, there is now no doubt the FOMC will begin a rate-cutting cycle late this month, which is currently expected to drive the Fed Funds rate down to 3% by December next year. Incoming data, especially those focusing on growth and employment ahead of this month’s meeting, will determine whether the FOMC will go big by cutting rates by 50 basis points.
The outcome of the FOMC meeting later this month, and with that the direction of the dollar as well as geopolitical developments, will all help determine whether gold can break the mentioned “September curse,” which has seen gold yield an average negative return in the last ten years of around 3%. At Saxo, we maintain a long-held positive outlook for gold, and whether history repeats itself or not, even a correction on par with last year’s near 5% drop would not change the bullish narrative, only allowing potential latecomers to join..
Our main reasons for staying long-term bullish on gold are:
So far, the continued absence of selling from traders looking to book profit highlights the yellow metal’s underlying strength. In addition, the shallow corrections seen throughout the rally, which began last October and picked up pace between March and April, have at no point been challenging technical levels that would force hedge funds to scale back a net long, which at 237,000 contracts and a nominal value of USD 59.2 billion, is the biggest since March 2020.
Since hitting a fresh record high last month at USD 2531.75, spot gold has since been consolidating within a 60-dollar wide range, currently offering support at USD 2470 ahead of trendline and 50-day moving average support at USD 2435.
Recent commodity articles:
4 Sept 2024: Wheat rises on European crop worries
3 Sept 2024: Chinese economic woes drag down crude oil and copper
2 Sept 2024: COT: Commodities see broad demand as the USD slumps to a net short
30 Aug 2024: Commodities sector eyes fourth weekly gain amid softer dollar and Fed expectations
27 Aug 2024: Month-long sugar slide pauses amid concerns of Brazil's supply
27 Aug 2024: Libya supply disruptions propel crude prices higher
26 Aug 2024: COT: Funds boost metals investment as dollar long positions halve amid weakness
23 Aug 2024: Commodities Weekly: Metal strength counterbalancing energy and grains
22 Aug 2024: Persistent supply contraints keep cocoa prices elevated
21 Aug 2024: Weak demand focus steers crude towards key support
19 Aug 2024: Resilient gold bulls drive price to fresh record above USD 2500
19 Aug 2024: COT Buyers return to crude as gold stays strong; Historic yen buying
16 Aug 2024: Commodities weekly: Gold strong as China weakness drags on other markets
9 Aug 2024: Commodities weekly: Calm returns to markets, including raw materials
8 Aug 2024: Sentiment-driven crude sell-off eases, allowing traders to focus on supply risks
7 Aug 2024: Limited short-selling interest observed during copper's recent aggressive correction
6 Aug 2024: Video: What factors are fueling the current market turmoil and gold's response
5 Aug 2024: COT: Broad commodities sell-off gains momentum; Forex traders seek JPY and CHF
5 Aug 2024: Commodities: Position reduction in focus as volatility spikes
2 Aug 2024: Widespread commodities decline in July, with gold as the notable exception