Gold holds support on doubts about Fed’s soft-landing message

Our gold monitor below highlights the current headwinds while also pointing to a gold price that has held up very well despite the recent and renewed rise in dollar, yields and lower short term interest rate futures (lower prices equal higher rates). During the past month, gold trades up 1.7% while the dollar has gained 1.4% against a basket of major currencies, ten-year US real yields trade 10 basis point higher while 2024 rate cut expectations have been reduced. In addition, ETF investors have been cutting holdings for the past four months, leaving total holdings down by 169 tons during this time to 2761 tons, a 3-1/2-year low. The leverage fund net long position meanwhile was 50k contracts (5 million ounces) in the week to September 12, just 25k contracts above the March and August lows.

The reason why gold in our opinion has been holding up well despite the mentioned headwinds which also includes the rising opportunity cost of holding a non-interest paying investment like the yellow metal, is likely to be a market in search for a hedge against the FOMC failing to deliver a soft, as opposed to a hard landing. In a recent article in the WSJ, titled “Why a soft landing could prove elusive” Nick Timiraos, the reporter known as the Fed whisper, writes about how almost every hard landing looks at first like a soft landing. He also highlights four developments standing in the way of a soft landing now:

• The Fed staying too high for too long
• A too-hot economy
• A rise in oil prices
• A financial market rupture

Quite poetically he ends by saying “Planes land. Economies don’t”

Demand for gold as a hedge against a soft-landing failure is unlikely to go away as the outlook for the US economic outlook in the months ahead looks increasingly challenged. With that in mind, we maintain a patiently bullish view on gold and with that also silver and platinum, and we see the yellow metal eventually reaching a fresh record. However, the timing for a fresh push to the upside will remain very US economic data dependent as we wait for the FOMC to turn its focus from rate hikes to cuts, and during this time, as seen during the past quarter, we are likely to see continued choppy trade action.