The most recent high in the COMEX gold futures market was in July 2024, when the precious metal rose to just below the $2,490 per ounce level. After a correction that took gold below $2,300 in May and June, the price was rose to a new high in July. In my Q2 precious metals report on Barchart, I wrote:
Gold settled Q2 at the $2,339.60 level. Gold was marginally higher at over the $2,380 level in July 2024, and the bullish path of least resistance remained firmly intact. Gold remains in a quarter-of-a-century bull market, and the odds favor higher highs over the coming months and years. Central banks have been buying gold, further validating its role in the global financial system.
The case for higher gold prices remains compelling during the second half of 2024. The Gold SPDR (GLD) is the most liquid gold ETF product.
Don’t fight the trend- A quarter-of-a-century of gains
Gold prices fell to a bottom at $252.50 on the nearby COMEX futures contract in 1999.
The long-term chart from the 1970s shows that gold’s bull market has made higher lows and higher highs over the past twenty-five years, reaching its latest $2,488.40 peak in July 2024. At the $2,405 level, the precious metal remains near the recent high.
The trend is always your best friend in markets, and gold’s path of least resistance remains higher as we move into the second half of 2024.
A BRICS currency is bullish for gold
U.S. sanctions on Russia and the bifurcation of the world’s nuclear powers have led the BRICS countries to seek alternatives to the world’s reserve currency, the U.S. dollar.
Over the past years, central banks worldwide have been net buyers of gold, increasing their reserves. China and Russia have led the way in accumulating gold, but the official statistics likely underestimate their gold purchases. As the world’s leading gold producers, China and Russia have likely vacuumed in domestic gold output, pushing their reserves even higher. Since the Chinese and Russians consider strategic commodity and currency reserves state secrets and national security matters, their reserves have likely grown exponentially over the past years.
The BRICS countries are working to roll out a currency to challenge the U.S. dollar, euro, and other allied reserve currencies. A BRICS currency may have some gold backing, making it less of a fiat than the existing reserve foreign exchange instruments. The price is likely to increase as gold’s role in the international financial system grows.
Moreover, historically high debt levels in the U.S. and Europe may add further upside pressure to gold prices.
Falling interest rates support higher gold prices
Gold tends to rise in a falling interest rate environment. Meanwhile, gold’s ascent over the past years as U.S. short-term rates rose from zero in March 2022 to a midpoint of 5.375% is a testament to the metal’s underlying strength.
The latest U.S. jobs data showed June unemployment rose to 4.1%. While June CPI came in slightly lower than expected, June’s PPI data was somewhat hotter, balancing the consumer price index data. At his latest testimony before the U.S. Senate and House of Representatives, Chairman Jerome Powell told legislators that the Fed’s next move will likely be a Fed Funds Rate cut. While the Fed needs further validation that inflation is heading towards its 2% target, the data over the past months justify an initial 25 basis point reduction in short-term interest rates.
As the Fed shifts from a hawkish to a more accommodative monetary policy stance, it will support a continuation of the quarter-of-a-century gold rally.
Bank of America’s $3,000 forecast could be conservative
Bank of America analysts forecast gold prices to rise to the $3,000 per ounce level over the next 12-18 months. The analysts wrote:
While the motivation of individual central banks for owning gold may vary, many reserve portfolios have one thing in common: the share of USD has been declining, while gold holdings have risen. The long-standing inverse relationship between gold and rates has become more tenuous already and, in our view, this is unlikely to change going forward.
BoA cited the rise in private bar and central bank hoarding to 49% of gold purchases in 2023 from 43% in 2022. The central banks bought 1,037 metric tons of gold in 2023, the second-highest year on record behind 2022’s 1,082 tons.
GLD is a liquid alternative to physical gold or futures
The most direct route for a gold investment is the physical market for bars and coins. In 2004, the Gold SPDR (GLD) became the first and most successful commodity ETF product. GLD’s fund summary states:
At $222.40 per share, GLD had over $66.687 billion in assets under management. GLD trades an average of nearly 5.8 million shares daily and charges a 0.40% management fee.
The most recent rally in the continuous COMEX gold futures contract took the price 37.5% higher from $1,809.40 in October 2023 to $2,488.40 in July 2024.
Over the same period, GLD rose 36.5%, moving from $168.30 to $229.65 per share. The ETF did an excellent job tracking gold prices, with slight underperformance due to its expense ratio.
The twenty-five-year bullish gold trend remains firmly intact as we head into the second half of 2024. The path of least resistance favors new all-time highs over the coming months as fundamental and technical factors present a compelling bullish case.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
