Gold started the week on the front foot in one of the most consequential weeks on geopolitics. The yellow metal appears to have found support above the $2700 an ounce level as traders await the outcome of the US presidential election. Likewise, the likelihood of another interest rate cut by the US Federal Reserve keeps the market on edge, fuelling demand for the safe haven.
US Elections Uncertainty
The uncertainty around the US election is one factor likely to drive the price of gold higher as split control of the House and Senate fuel safe haven inflows. With opinion polls too close between Democratic candidate Kamala Harris and Republican Donald Trump, the uncertainty should benefit gold, which traders turn to in times of uncertainty.
Analysts at JPMorgan expect gold prices to rise should Donald Trump ascend to power. According to the analyst, Trump’s win should inspire retail investors to buy risk assets in the debasement trade.
Federal Reserve Rate Cut
In addition to the uncertainty of the US election, traders focused on the Federal Reserve interest rate decision on Wednesday, which is likely to influence dollar strength and gold price. The US dollar has lost traction amid expectations that the FED will cut interest rates by a quarter percentage point. A safe investment during economic and geopolitics uncertainty, gold tends to thrive in a low interest rate environment.
While Gold is already up by more than 35% for the year outperforming the S&P 500, which is up by about 22%, Lina Thomas, analyst at Goldman Sachs, expects the upward momentum to persist. The analyst expects a 10% gain before year-end, which could see gold price above the $3000 level. Expectations of higher gold prices come on solid market demand as investors’ fear of missing out continues to spark higher prices.
Gold Demand
Consequently, demand for gold has already surpassed $100 billion for the first time in the year, according to the World Gold Council. Strong demand has not only come from retail investors. A push by central banks to diversify their holdings from the US dollar as they look to strengthen their foreign reserve has also aided in fuelling higher gold prices.
According to the World Gold Council, the overall demand for investments, including bars, coins, and backing for exchange-traded funds, more than doubled in the third quarter, reaching 364 million tons. Due in part to favourable profit margins and lower energy costs, mine production increased 6% year over year to set a new quarterly record. However, the supply of recycled gold has not kept up with the price increases.
After nine consecutive quarters of outflows, inflows into gold-backed ETFs reached 94 tons. Worries about the amount of government debt, especially in the US, have caused family offices and affluent individuals to purchase more gold in recent months.
However, central banks slowed their gold purchases during late summer, with buying falling 49 per cent year-on-year to 186 tons, the lowest quarterly level in two years. The sharp increase in gold prices since March had inhibited buying by central banks. Similarly, Jewellery demand has been dented by high gold prices, with global consumption falling 7 per cent in the quarter compared with the previous year, according to the WGC. Jewellery represents about 40 per cent of global gold demand.
