Gold prices supported by an escalation in geopolitical risks and US monetary policy outlook

• US Federal Reserve looks increasingly likely to cut interest rates in September – the risk is this turns out to be a ‘buy-the-rumour, sell-the-fact’ setup.
• Assassinations of Hamas and Hezbollah leaders on foreign soils raises geopolitical tensions in the Middle East.
• Gold demand rises in the second quarter, but high prices have become a significant headwind for jewellery demand, especially in China and India.
• Fund longs have started to take profits, but the trend in ETF buying picked-up momentum in July.

Silver prices have been relatively weak compared with gold, with the general global economic weakness weighing on sentiment

• Concerns that the solar panel industry has been over producing panels, which will lead to production cuts, has become a temporary headwind for silver demand.

PGM prices remain depressed, but will demand be as weak as the market fears? In addition, more production cutbacks are expected

• Demand for plug-in hybrid and hybrid EVs looking stronger than battery-only EVs, this should be supportive for PGMs.

With markets becoming ever more convinced the US Federal Reserve will start cutting interest rates in September, the backdrop for gold has remained bullish."

Gold consolidated in June, but held up well compared to other metals

With markets becoming ever more convinced the US Federal Reserve will start cutting interest rates in September, the backdrop for gold has remained bullish. Rising geopolitical tensions in the Middle East, with the assassination of senior Hezbollah and Hamas leaders in Beirut and Iran respectively and the volatile US election race were additional supporting factors for gold that helped push prices up to a fresh record high of $2,483.70 per oz on July 17. But despite all these bullish factors, the main driver of high gold prices this year is thought to have been the huge buying by Chinese speculators. If they liquidate, then all the underlying bullish factors are likely to take a backseat while the market corrects. Given the underlying bullish factors are unlikely to go away anytime soon, any such sell-off is likely to provide another buying opportunity.

Concerns that the solar panel industry has been over producing panels, has become a temporary headwind for silver demand."

Fed says first cut could be in September

Fed chair Jay Powell said at the July 31 FOMC meeting that a reduction in the policy rate could be on the table as soon as September, but that the Committee would need even greater confidence that inflation was falling before they were willing to cut. While core CPE price index fell to 2.63% yoy in June, services inflation remained high at 5%. 

But, the July US jobs report was weaker than expected, which probably gives the Fed the evidence it needs. However, with the US introducing, or raising, tariffs as trade tensions grow, the downward trend in US inflation may not last that long.

The downward trend in US inflation may not last that long."

Gold trends - WGC

The World Gold Council published its second quarter report on gold, its main findings were that record high gold prices came about on the back of continued central bank buying, strong over-the-counter investment and an upturn in Western ETF inflows, while the high prices hit jewellery consumption. Despite the latter, total gold demand, including OTC investment, was 6% higher yoy, at 1,258 tonnes. The two polarized parts of the demand trends were jewellery demand that fell 19% to a four-year low of 391 tonnes, while 329 tonnes of OTC investment demand was up 53%, yoy. Supply climbed 4% to 1,258.2 tonnes.

12 Aug 2024 | Categories: Gold, Silver, China, US, Platinum, Palladium, India

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