I explained why gold’s upside target could be above the $3,300 per ounce level in an October 17 Barchart article. I wrote, “$875 in 1980 is over $3,340 per ounce in 2024. With gold in nominally uncharted territory, the inflation calculator for the inflation-sensitive gold price could set the upside target in the current environment.” Nearby December COMEX gold futures were at $2,690.70 per ounce on October 16 and were on their way to over $2,800 on October 30 and 31. Gold prices have moved lower since late October, and while a deeper decline is possible, buying on a scale-down basis could be a golden opportunity for the coming months and years.
Gold’s long-term bullish trend remains firmly intact
After probing above the $2,800 per ounce level for the first time in late October, gold prices corrected lower.
The five-year continuous COMEX gold futures contract highlights gold’s recent $200 decline from the $2,800 to the $2,634 per ounce level. Previous new record highs have typically led to corrections, as even the most aggressive bull markets rarely move in straight lines.
Meanwhile, the quarterly continuous COMEX gold futures contract illustrates that the bull market that began in 1999 at $252.50 per ounce remains firmly intact. Gold remains over ten times higher than the 1999 low despite the recent $200 correction.
The November 5 U.S. election caused selling to emerge
Markets hate uncertainty, and while many U.S. voters are unhappy with the November 5 election results, President-elect Donald Trump’s second term with a majority in the Senate and a slim majority in the House of Representatives provides certainty about U.S. policy initiatives for the coming two years until the next round of Congressional elections. President-elect Trump plans to lower taxes and regulations, aggressively address immigration, and ramp up U.S. traditional energy production.
Gold tends to be a fear barometer, so the recent decline could be a function of political certainty in the world’s leading economy. Moreover, the U.S. dollar has strengthened, and bonds moved lower after the election. A stronger U.S. dollar and higher interest rates tend to weigh on all commodity prices, and gold is no exception.
Gold’s role in the global financial system continues to rise
While the U.S. election results have been bearish for gold prices, central banks worldwide continue to purchase gold, adding to reserves and validating gold’s role in the worldwide financial system.
China and Russia have been leading gold buyers over the past years. Sanctions from the U.S. and Europe have increased gold’s attractiveness for many countries, as owning gold instead of the world’s reserve currencies, the U.S. dollar and euro can avoid some sanctions. In 2023, China led the world in gold purchases. However, the official data does not include the domestic production that China and Russia move into their respective reserves. China was the leading gold-producing country in 2023, with Russia third. China and Russia consider their strategic commodity ownership a national security matter. Russia’s gold holdings at over $300 billion are now 32.9% of the country’s international reserves.
Gold has been a critical means of exchange for thousands of years, and governments continue to validate the role of precious metals, supporting higher prices. Declining faith and credit in fiat currencies continue to be bullish for gold.
The U.S. deficit is not bearish for gold
The U.S. debt clock is about to reach another milestone as it passes the $36 trillion level. While the Fed has lowered the short-term Fed Funds Rate by 75 basis points since September, at a midpoint of 4.625% in November 2024, financing the debt costs over $1.66 trillion annually.
As debt levels rise, they weigh on the full faith and credit of U.S. government debt securities and currency values. While the bond market has been falling, and longer-term rates have increased, the exponentially rising U.S. deficit level is a bullish factor for gold, which is a rare asset. While central banks and governments can increase the money supply at will, the only way to increase the gold stock is to extract the metal from the earth’s crust.
The trend is always an investor or trader’s best friend, and it will take a huge correction to change gold’s path of least resistance
Gold’s bull market will end its twenty-sixth year in 2025. While the certainty following the U.S. election could lead to a deeper correction over the coming weeks and months, it would take price carnage to end gold’s bullish trend.
The 30-year quarterly continuous COMEX gold futures chart shows that technical support for the over quarter of a century gold bull market stands at the Q4 2022 $1,618.30 per ounce low, which is nearly $1,000 below the price in late November 2024.
Since the turn of this century, buying gold on price corrections has been optimal, and I expect that trend to continue. Therefore, I am a scale-down buyer of gold and gold-related assets during the current correction, leaving plenty of room to add on deeper declines over the coming months. I believe gold will find another higher low above the Q4 2022 low before it resumes its ascent to even higher highs.
