In a bullish rally, the price of gold soared to a six-month peak on Monday, propelled by mounting investor confidence that the US Federal Reserve has concluded its interest rate hikes and a concurrent weakening of the US dollar.
Spot gold prices experienced a 0.6% increase, reaching $2,014.55 per troy ounce, marking the highest level since mid-May. This surge elevated the precious metal’s gains to just over 10% since touching a seven-month low in early October. Despite this climb, gold remains approximately 3% below its record high achieved in August 2020.
The ascent of gold is closely linked to the declining value of the dollar, which depreciated by about 3% against a basket of six major currencies in November. This depreciation makes investing in gold more affordable for those holding currencies other than the US dollar.
Soft economic indicators in the US have further fueled expectations that interest rates will remain unchanged for the remainder of the year and potentially be reduced in the coming year. Yields on two-year Treasuries, sensitive to interest rates, have retreated from their mid-October peak of 5.2% to 4.94%. Gold, lacking any yield, becomes more appealing to investors as interest rates decline.
Ewa Manthey, a commodities strategist at Dutch bank ING, emphasized, “The US rate outlook is the key driver for gold,” highlighting that lower rates are typically favorable for gold due to its lack of interest yield.
Concerns about a potential escalation in the conflict between Israel and Hamas have also played a role in gold’s price surge. Gold is often considered a safe-haven asset, and while the Middle East conflict is currently contained, the uncertainty continues to support the gold price.
Analysts anticipate that gold may test its previous all-time high of just below $2,075 per ounce by the close of 2023. ING forecasts suggest that gold will maintain record highs in 2024, averaging around $2,100 per ounce in the fourth quarter.
Central banks remain influential in driving gold demand, having purchased a record 1,136 tonnes of gold last year and an additional 800 tonnes in the first three quarters of 2023. China’s People’s Bank leads this trend, acquiring 181 tonnes, followed by Poland with 57 tonnes and Turkey with 39 tonnes.
Despite challenges faced by mining companies in 2023, including labor, fuel, and materials costs, along with higher borrowing expenses, gold itself has significantly outperformed the market. The NYSE Arca Gold Miners index, representing a mix of small and large-cap groups, has only gained 1% since the beginning of the year.
Silver prices have outpaced gold in recent days, surging over 4% since last Thursday. Ross Norman, Chief Executive of Metals Daily, attributes this unusual lead of silver over gold to speculative market activity driven by expectations of the Fed cutting rates.
Analysts foresee a continued strong demand for gold throughout the remainder of the year, citing factors such as the Indian wedding season, Christmas, and the Chinese New Year. This positive sentiment has bolstered confidence among gold bulls, according to Ross Norman.
Photo (By: Ebenezer Mensah via BNN Brreaking)
27th November, 2023
By: Delino Gayweh
Serrari Financial Analyst
