Gold has experienced a remarkable performance in the first half of the year, driven primarily by its appeal as a safe-haven asset amid geopolitical conflicts and substantial central bank purchases.
The precious metal’s price surged over 15% year-to-date, trading above $2,300 per ounce for most of the second quarter, marking its best run since the Covid pandemic. Despite high interest rates, a strong US dollar, and divergent trends in US Treasury yields and ETF holdings, gold has set records continuously.
The outlook for gold remains positive, supported by a combination of geopolitical uncertainties and anticipated economic conditions.
US Rate Cut Prospects Boost Gold
The optimism surrounding potential US interest rate cuts has significantly supported gold prices this year. Lower borrowing costs generally benefit non-interest-bearing assets like gold.
Although the US Federal Reserve has maintained its key policy rate between 5.25% and 5.5%—the highest level in over two decades—recent poor economic data have increased the likelihood of a shift towards monetary easing. The US Bureau of Labour Statistics reported cooling hiring and wage growth in June, with a slight increase in the jobless rate.
Consequently, swap traders now see a 75% chance of a rate cut in the next two months. Projections suggest the Fed funds rate could drop to 4% by next summer, which bodes well for gold prices.
Central Banks’ Continued Gold Purchases
Central banks have maintained their buying momentum, with net purchases of 10 tons in May, led by emerging market central banks. The National Bank of Poland was the largest buyer, followed by the Central Bank of Turkey and the Reserve Bank of India.
Although China’s gold purchases have slowed, with no additions to reserves in May and June, other countries have continued to bolster their holdings. For instance, the Reserve Bank of India added over nine tonnes in June, marking the highest monthly addition since July 2022.
The World Gold Council’s recent survey indicates strong central bank purchasing intentions, with 29% of respondents planning to increase their gold reserves in the next 12 months. This follows substantial annual purchases in 2022 and 2023, reinforcing the outlook for continued robust central bank demand.
Gold ETFs and COMEX Positions Reflect Positive Sentiment
Global gold ETF flows turned positive in May after a year of declines, particularly driven by inflows from Europe and Asia, while North American flows remained negative.
Generally, gold ETF holdings rise with increasing gold prices, and the shift to positive flows in May aligns with the upward trend in spot gold prices. Additionally, net-long positions on the COMEX have hit a four-year high, further contributing to the positive market sentiment for gold.
Safe-Haven Demand and Geopolitical Risks
Gold’s role as an economic hedge is underscored by ongoing geopolitical risks, including the conflicts in Ukraine and the Middle East and tensions between the US and China.
These factors are likely to sustain safe-haven demand for gold in the short to medium term. The upcoming US presidential election in November and anticipated Federal Reserve rate cuts are also expected to support gold prices through the end of the year. Central bank purchases are projected to continue, providing additional support.
Strong Gold Performance Set to Continue
Gold has demonstrated resilience and strength as a safe-haven asset amid global uncertainties. Despite the challenges posed by high interest rates and a strong US dollar, the precious metal has set records and shown positive growth.
With continued central bank demand and potential US interest rate cuts on the horizon, gold is poised to maintain its upward trajectory. Investors can expect gold prices to remain strong, supported by both geopolitical factors and economic conditions.
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I’m Jackson Hartwell, a writer who specializes in dissecting current business events. I’m dedicated to providing you with clear and concise insights into the world of politics, making it easier to understand the latest news and developments.
