Can the international gold price consolidate its upward trend?
Recently, geopolitical tensions and market expectations of interest rate cuts have jointly driven international gold prices to surpass the $2700 per ounce mark and continue to rise. However, with several Federal Reserve officials stating that they will slow the pace of interest rate cuts, the upward momentum of international gold prices has been somewhat suppressed.
Time:
2024-10-25 16:14
Recently, geopolitical tensions and market expectations of interest rate cuts have jointly driven international gold prices to surpass the $2700 per ounce mark and continue their upward trajectory. However, with several Federal Reserve officials indicating a slowdown in the pace of interest rate cuts, the upward momentum of international gold prices has been somewhat curbed.
From the perspective of the current macroeconomic fundamentals, interest rate cut expectations and geopolitical risks remain the primary drivers of the rise in international gold prices.
After the Federal Reserve initiated its interest rate cut cycle, officials have repeatedly mentioned the neutral interest rate level. However, there is no consensus within the Federal Reserve regarding the future level of the neutral interest rate. If inflation falls smoothly and the economy shows no signs of recession, the neutral interest rate may be higher than the approximately 3% level indicated in the Federal Reserve's interest rate forecast dot plot. The specific interest rate value will need to be determined based on future market data. Federal Reserve Chairman Powell has also indicated that the neutral interest rate may be higher than expected.
In the long term, if the magnitude of this interest rate cut cycle is lower than expected, it will indeed limit the upside potential of international gold prices. However, as we are currently in the initial stage of the interest rate cut cycle, there is still considerable room for further cuts, and interest rate cut expectations may boost the upward trend of international gold prices.
In the short term, the signal from Federal Reserve officials to slow the pace of interest rate cuts has put short-term pressure on international gold prices. However, it is worth noting that the expectation of a 25-basis-point interest rate cut in November remains unshaken. It is expected that the market will continue to speculate on interest rate cuts before the 25-basis-point interest rate cut in November materializes.
Currently, the US presidential election is only two weeks away. Due to the rise in Trump's support rate, the market has restarted the "Trump trade," which has boosted the US dollar index in the short term, thereby putting pressure on international gold prices. However, when the market first initiated the "Trump trade," considering that Trump's policies may cause economic turmoil, there was an inflow of funds into North American gold ETFs (exchange-traded funds).
As of September, North American gold ETFs have seen continuous inflows for three consecutive months, while global gold ETF funds have seen inflows for five consecutive months. ETF buying is a noteworthy signal. Gold needs the support of ETF investors with a longer-term investment horizon to confirm the arrival of a bull market, and the funding side strongly supports the upward trend of international gold prices. The recent simultaneous rise in international gold prices and the US dollar index reflects the market's simultaneous purchase of dollars and gold for hedging purposes.
In addition, persistent geopolitical tensions continue to support the upward trend of international gold prices.
With the escalating situation in the Middle East, the ongoing Russia-Ukraine conflict, and heightened tensions between North and South Korea in East Asia, market risk aversion has rapidly intensified, thereby boosting international gold prices.
International gold prices have now broken through $2700 per ounce. Although some technical indicators are currently in an overbought state, as long as the fundamentals remain unchanged, international gold prices may still be on an upward trend; at the same time, we must be wary of the outcome of the US presidential election. If Trump is elected, it may have a significant impact on international gold prices.
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Although gold prices rose this week, market volatility has clearly increased. While the US-UK agreement is symbolic, its content is limited and insufficient to alleviate concerns about a global economic slowdown. Therefore, gold prices will continue to fluctuate between safe havens and policy signals, closely monitoring the Federal Reserve's interest rate expectations and global trade sentiment.