What’s next as gold reaches USD 2,300? What’s next as gold reaches USD 2,300? What’s next as gold reaches USD 2,300?

What’s next as gold reaches USD 2,300?

Ole Hansen

Head of Commodity Strategy

Key points

  • Gold remains a buy-on-dip market, defying the normal negative impact of dollar and yield strength
  • Silver breaks higher, supported by gold and not least a strong rally in copper
  • Consolidation may follow in the short-term before rate cuts potentially triggers a second leg higher

In our end of March update, we wrote about how gold's recent behaviour, where the yellow metal had been rising without clear reasons to explain the move, deserved a great deal of respect as it pointed to sustained strong underlying demand. Since then, the rally which started back in early October when Hamas attacks on Israel raised the geopolitical temperature, has gone from strength to strength, resulting in last month's 8.3% gain to a record high.

Today, gold reached the USD 2,300 target we set out in our Q1 24 outlook titled “Year of the metals”, where we expressed our bullish views on gold, silver, copper, and eventually also platinum. It is however interesting to note the target was achieved without three important drivers, namely rate cuts, where expectations have fallen from above seven at the start of the year to less than three currently. With rate cuts on the horizon, we envisaged a weaker dollar, and lower real yields would lead to a pickup in demand for ETFs from real money managers. Neither of these have yet materialised, and instead gold has been driven higher by hedge funds, or speculators enjoying the strong momentum that has been set in motion by strong demand from investors around the world responding to heightened geopolitical tensions and debt-financed growth.

In our Q2 24 outlook released earlier this week, we highlighted the reasons why we believe the year-long consolidation phase across the commodity sector is over, not least due to expectations for industrial and precious metals to perform well, together with energy and a heavily shorted grains sector.

In the short term, both gold and silver will likely consolidate, but with rate cuts leading to dollar and yield tailwinds still awaiting on the horizon, we see gold potentially make an extension towards USD 2,500 and silver towards USD 30, the February 2021 high. The biggest threats to prices being the unlikely lowering of the geopolitical temperature, central banks pausing their aggressive gold buying spree while adapting to higher prices, and hedge funds pairing back part of the near 300 tons of gold they accumulated through the futures market last month.

The strong momentum rally that followed last month's breakout above USD 2,075 has so far not been challenged, with a mid-March consolidation only triggering a 50-dollar correction. The lack of notable corrections, potentially challenging recently established longs held by hedge funds and CTAs, has been key to gold's continued rally. Using Fibonacci as a guide, a correction at this stage to USD 2,245 or even USD 2,225 may not be enough to challenge the mentioned long positions. Following a period of consolidation, the prospect for rate cuts and a resumption of central bank buying could potentially see the price reach for USD 2,500 later in the year, while the big line in the sand below remains USD 2,075

Source: Saxo

Silver, meanwhile, has for a while been struggling relative to gold, not least because the white metal has not enjoyed support from central bank buying. During the past month, however, the semi-precious metal which derives around half of its demand from industrial applications has received a boost from a recovering industrial metal sector, not least copper which has jumped to a 14-month high in response to tightening mined supply outlook and Chinese smelters discussing production curbs at a time where hopes for a global recovery in demand gather momentum.

During the past week, the gold-silver ratio has slumped from above 90 ounces of silver to one ounce of gold to the current 84.7, a move that highlights silver's ability to rally hard when it receives dual support from both gold and copper. From a technical perspective, the break above resistance-turned-support around USD 26 was relatively quickly followed by a break above USD 27, the March 2022 high, with the next major level to watch being the USD 28 area, our initial target for the year, ahead of the decade high at USD 30.

Source: Saxo

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

Saxo
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992