Join our daily newsletter At The Bell to receive exclusive market insights
The World Gold Council (WGC) has released its CY24 midyear outlook for gold markets, writing that the market for the yellow metal is currently “in search of a catalyst.”
The comments come after gold prices hit an all time high above US$2,415/oz in mid-late May driven by geopolitical risks as central banks bought more than usual – especially China and India.
To that end, the WGC warned of steep sell-offs from Asian investors potentially putting further downward pressure on gold prices in the foreseeable future.
“A sizable drop in central bank demand or widespread profit-taking from Asian investors could curtail its performance,” The WGC wrote.
“As it stands, however, global investors continue to benefit from gold’s role in robust asset allocation strategies.”
Conversely, the body also pointed to the fact that gold ETFs have seen net outflows this year and that gold markets are missing a lot of Western investors ex-Asia due to higher interest rates. WGC perceives that gold prices could rise through H2 of CY2024 if Western investors pile back into gold.
“Gold’s strong performance, despite the absence of strong Western flows, suggests that, unlike previous periods when gold broke record highs, the market is still not saturated and could see another leg up,” WGC wrote on Wednesday.
For now, while gains have pared off to ~US$2,330/oz, gold prices still remain at historical highs never seen before. Predictably, gold miners on bourses all over the world had a brief period of joy to ride on – so did shareholders and traders.
However, the fact gold is touching all time highs during a period of high inflation (and interest rates) is perhaps not surprising for those more cynical, given gold’s a commodity that tracks inflation by its very nature regardless of the world around it. Good news, all the same, for those who have money tied in the metal.
But with YoY gains having now subdued to a 21% YoY return, investors are asking – what’s next? This is the ‘search for a catalyst’ the WGC referenced on Wednesday.
“Our analysis suggests that the gold price today broadly reflects consensus expectations for the second half of the year,” the WGC itself wrote – adding in the tantalising hint of another macroeconomic or geopolitical risk event right around the corner.
All things in order, they’re probably not far from the ballpark when it comes to the likelihood of further globally significant disruptions of one kind of another. That primer for such an event most recently reverberating through the international consciousness is the looming US election, brought back to the spotlight by last week’s sensational debate.
(Widespread unrest in Kenya and an attempted coup in Bolivia in the last fortnight have failed to rouse the Americentric market’s interest.)
Should Trump get elected again as US President, that itself will most probably be its own catalyst for gold, per what we’re seeing right now with the far right winning 33% of the vote in France.
Notably, but often ignored, Trump has implied he would spend the first year back in office arresting political opposition, which would fundamentally be a kill-shot for whatever scrap of moral superiority people may pretend the US still has left to its name (remember the country recently banned abortion.) So, there’s that.
Trump is also tied into the other big military geopolitical question of our age outside of the Middle East (Trump is pro-Saudi) which also has implications for gold.
What would a Trump election mean for Russia’s war in Ukraine? Here once again, the TV showman has placed himself centre stage. Trump’s status as a conspiracy lover (and thus loved by theorists, a seemingly ever-growing demographic) makes it hard for him to start getting warm with NATO.
Especially after he inferred the US pays more to the international armed force than any other country and that if other countries wouldn’t pay an equal share, the US may just stand back while Russia does whatever.
Not exactly great for certainty. Then there’s the former hot topic of 2023: recession.
The WGC also has a widespread recession risk on its radar, but, wrote it does not expect this to come to fruition – at least “in the current term.”
As of early afternoon Wednesday, gold prices are up 20.9% YoY and down -0.06% MoM. The price is currently trading around US$2,327/oz.
