The price of gold today (GCZ23) soared to an all-time high of $2,130.2 an ounce on the COMEX exchange before falling back. Gold prices have climbed more than +16% over the past month from a 9-month low on growing speculation that the Federal Reserve and European Central Bank are done tightening monetary policy and will begin cutting interest rates early next year.
Gains in gold prices were turbocharged last Friday when Fed Chair Powell said that monetary policy is “well into restrictive territory,” spurring a gold-positive plunge in the dollar and T-note yields. Gold rallied even after Fed Chair Powell last Friday also said, "it would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate when policy might ease.” Also, ECB Governing Council member Villeroy de Galhau said last Friday, "Barring any shock, ECB rate hikes are over," and we can look at rate cuts when the time comes in 2024.
Gold prices have also recently benefited from other factors, including safe-haven demand from geopolitical concerns and purchases by central banks and governments led by China. The People’s Bank of China (PBOC) recently reported that China added to its gold reserves for the twelfth straight month in October. Tiberius Group AG said gold “is the answer for many things at the moment, whether it’s inflation carrying on, speculation of interest rate cuts, or the uncertainty with very costly wars going on” around the world.
Swaps markets are now pricing in interest rate cuts by the Fed and ECB for early next year, fueling the latest surge in gold prices. The markets are then discounting a 62% chance for a -25 bp rate cut at the March 19-20, 2024, FOMC meeting and are more than discounting (a 131% chance) that -25 bp rate cut at the Apr 30-May 1, 2024, FOMC meeting. Also, swaps markets are pricing in a 73% chance that the ECB will reduce its benchmark rate by -25 bp at the March 7 meeting and are more than pricing in (+153%) that -25 bp rate cut at the April 11 ECB meeting.
Some analysts believe the rally in gold prices to a record high is overdone and is not sustainable without an increase in fund demand. Oanda Asia Pacific Pte said today’s rally in gold to a record high looks like it was “more driven by stop-loss orders” and warns of a risk of a pullback in the short term. Also, investor participation remains tepid in gold’s latest surge. Investors in gold via exchange-traded funds (ETFs), a key driver of previous bull markets in gold, have been sellers for much of this year, with ETF holdings down by more than -20% from a record high in 2020. UBS Group AG said, “To see even higher prices from this high base, investment demand needs to increase in the form of greater ETF purchases.”
On the date of publication, Rich Asplund 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.
