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As part of my comprehensive analysis for the 2024 gold market, I’ve maintained a constructive outlook on XAU, suggesting the possibility of reaching new highs in the latter half of 2024 and extending into 2025. My conviction stems from several factors: ongoing monetary easing by central banks, the potential for a weaker USD, geopolitical tensions, and escalating recession and political risks in the US. These elements have fuelled a growing demand for safe-haven assets like gold as a hedge against currency devaluation and risk aversion.
However, the recent surge in gold prices to record highs caught me off guard. Despite the conducive environment, certain prerequisites for a sustained rally have not yet materialized. For instance, the rally occurred amidst a backdrop of robust risk appetite favouring assets like Bitcoin. Additionally, although expectations for Fed easing have solidified, this has yet to translate into a significant decline in US real rates.
US10Years Rate
Furthermore, the USD's upward trend has stalled, but it hasn't depreciated significantly due to currency debasement concerns. This has widened the gap between gold and the USD, casting doubt on the sustainability of the rally. Moreover, the recent surge occurred amid diminished market focus on geopolitical risks and successful efforts to prevent a US government shutdown, further questioning the longevity of the gains.
CreditAgricole US economist anticipates the Fed easing cycle to commence in the summer, potentially leading to a brief recession in late 2024. Historical analysis of past Fed easing cycles indicates that weakness in the USD relative to gold tends to precede rate cuts, with gold often extending its gains during subsequent months as easing policies persist.
Gold 1H Chart
Despite the recent rally, indicators of investor demand for gold remain lacklustre. Data on ETF holdings and speculative market positioning do not suggest a significant uptick in investor appetite for the precious metal. Similarly, while central banks have historically been significant buyers of gold, recent figures only account for demand up to January and may not fully explain the recent rally.
XAU Price vs Official Central Bank Gold Reserves
In conclusion, I remain cautious about the sustainability of the latest gold rally and are hesitant to adjust my outlook based solely on recent movements. Instead, I prefer to await further evidence of a compelling fundamental case for continued XAU gains and signs of increasing market demand before making any adjustments to my forecast.
Insights Inspired by Credit Agricole: Credit to Their Analysis for Shaping Some Aspects of This Text
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