The gold market has been so volatile lately, that while time of writing and by the time I finish it, boom – the markets go crazy. So, in order to let the volatility stabilise, I calmed down and waited for gold to calm down too.
The precious metals started last week with a bang and ended with a boom. Trump’s assassination attempt along with other reasons pushed gold to new highs. The precious metal started the week strong and managed to rally to a new peak of above $2480 an ounce. However, bullish momentum quickly faded as markets gave up gains and ended the week in negative territory for the first time in three weeks. It ended the week at a critical juncture as it tested crucial support at $2400 an ounce.
As per Gold Update by Prithviraj Kothari, the run in gold prices this year has been very impressive, though we cannot be precise about the cause, but the fact that – The U.S. Presidential Election is only four months away, and while geopolitical uncertainty is supporting a safe-haven bid in gold, further a positivity surrounding the election of Donald Trump as the US President – this could be just the start of a broader rally for the precious metal.
Trump’s Assassination Attempt- An assassination attempt against Trump over the weekend has boosted his chances of reclaiming his position in the White House. While a lot can happen in the next four months, analysts are starting to forecast what the global economy will look like during a second Trump Presidency.
According to a growing number of commodity analysts, gold should do well in the next four years. Trump has laid out a fairly clear plan to lower taxes and will not be afraid to use tariffs to impose his government’s will on globally trade. Trump is also expected to pressure the Federal Reserve to keep interest rates low to support the economy.
U.S. Presidential Elections supporting Trump’s victory- A Trump presidency would be particularly bullish for gold due to policies favouring higher deficits, tariffs, and potential pressure on Federal Reserve independence. Simply extending the maturing tax cuts would add US$3 trillion to the deficit over the next ten years.
U.S. Presidential Elections supporting Bidens victory-While a second term for Biden is also seen as positive for gold, Trump’s approach could create a more inflationary environment, further boosting bullion prices.
As per Bullion King of India, Prithviraj Kothari, Gold prices have performed remarkably in the first half of 2024. it does seem the Federal Reserve (and to some extent all central banks) are more comfortable with higher structural inflation. All this is to say we believe a Biden second term should not be a negative for gold prices, but if Trump is re-elected and he follows through on his policy positions, gold could have another run.
U.S Data- As per Prithviraj Kothari’s view on Gold, Gold edged higher for a third day as traders look ahead to the release of key US inflation figures later on Thursday.
US CPI report weakened US Dollar and supported gold as US interest expectations showed higher confidence in September and November cuts, suggesting even 25% chance of 3 cuts this year. As for now, gold futures gain almost 1.9%, rising to the highest level since 20 May.
US Super core CPI (non-housing services inflation) dropped by -0.154% on monthly basis, first time since 2021 (but is still higher to 4.6% on a yearly basis). Markets may now see higher chances that a further drop in inflation will end in the recession, as June services ISM data and NFP report were quite weak. In the effect we can see higher volumes and rally on gold market today.
Central Bank Buying– Central Banks continued to purchase the yellow metal, owing to their strategy of USD diversification thus resulting in rise in demand. Central banks Central banks such as China, Russia and India possess gold holdings at 1-3% of foreign exchange reserves, well below European central banks at over 10%, a level PBoC has in the past repeatedly noted it sees as more ideal.
Interest Rate– Along with gold’s technical outlook, investors will also be paying attention to fundamental economic data as key inflation numbers are released next week.
Analysts note that gold currently has a strong correlation with interest rate expectations. Gold’s rally to new all-time highs has coincided with expectations that the Federal Reserve will start its easing cycle in September.
Analysts have said that these three policies alone could have a significant impact on gold, as lower interest rates would weaken the U.S. dollar, lower taxes would increase the deficit, and increased tariffs would heighten geopolitical tensions.
Summing it up, majority of the players in the market believe that gold is set for another run given the amount of news and volatility that awaits in the coming weeks.
Demand, US Politics, US Data, Geopolitical tensions are some the key events that will continue to influence the yellow metal.