(News Bulletin 247) – The precious metal reached its highest level overnight from Sunday to Monday. Several elements argue that the rise in gold will continue over the coming months.

The “barbarian relic,” as economist John Maynard Keynes nicknamed it, has never been so expensive. Gold climbed overnight from Sunday to Monday to a new all-time high, reaching $2,152.3 per ounce around 1 a.m. French time, according to Marketwatch data.

Since January 1, the commodity has gained 13.8%, an increase which is in reality comparable to that of the stock markets, the S&P 500 advancing by 19.7% over the same period and the CAC 40 by 13 .5%.

The upward movement in gold has become particularly clear in recent months. Since the beginning of October, gold has gained more than 200 dollars, thus registering an increase of 13.6%. Expectations of an end to key rate increases by the American Federal Reserve (Fed) coupled with a renewed geopolitical tension, with the flaring up of the conflict between Israel and Hamas, fueled the recent rally in the yellow metal.

After this significant upward movement, does gold still have anything under the hood for the coming months?

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Towards more favorable interest rates

Several elements tend to show that the precious metal in any case has several supporting factors that could justify an extension of its progression. In a recent note, the bank UBS estimated that gold “was ready to reach new heights” (it therefore had a hollow nose) in 2024 and 2025. The Swiss establishment expected a gold price of 2,200 dollars per ounce at the end of 2024 and at $2,250 at the start of 2025.

The first and most important support factor for gold remains the favorable trend in interest rates. Unlike stocks (with dividends) and bonds (with coupons), gold does not produce income. Its price is consequently hit by the continuous rise in interest rates, because it then becomes less and less interesting to invest your money in gold rather than investing it.

“The yellow metal is traditionally negatively correlated with the level of interest rates. When they fall, all things being equal, the price of gold tends to increase,” underlines the Comptoir national de l’or.

However, the major central banks’ expectations of an increase in key rates have come to a sudden halt in recent weeks, which has been reinforced by the latest inflation figures in the United States and the euro zone. The market is now wondering more about the deadline for the first key rate cut by the American Federal Reserve (Fed) and about the extent of the rate cuts for next year.

For now, according to FedWatch data from the CME Group, investors attribute a probability of more than 50% to a Fed rate cut as early as next March. And by December 2024, the market is currently counting on rate cuts representing a total of 125 basis points (1.25%), which represents five rate cuts of 25 basis points .

Falling dollar?

These key rate cuts should lead to interest rate cuts and therefore support gold prices. UBS notes that on average when the real yield (adjusted for inflation) of the 10-year US Treasury bond falls by 100 basis points, gold jumps by 11%.

Another, more technical factor: the evolution of the dollar. Like all raw materials, gold is denominated in dollars and therefore an increase in the greenback is unfavorable for gold, because it makes the metal more expensive and therefore less attractive for investors whose reference currency is n It’s not the dollar. However for UBS, the dollar should weaken, with the eurodollar which could rise to 1.12 dollars at the end of next year, according to its projections, against 1.0865 dollars at present. Bank of America even anticipates a Eurodollar at 1.15 by the end of next year, an exchange rate which would be achieved more thanks to a fall in the dollar than a rise in the euro, according to it.

Third supporting factor: uncertainty both geopolitically and economically. Gold remains a safe haven, to which investors are supposed to turn when risk aversion rises. The major geopolitical uncertainties (conflicts in Ukraine and the Middle East, diplomatic tensions between the United States and China) are not really experiencing any calm, and the economic outlook remains unclear, with a potential recession in the United States remaining the major unknown.

Central banks keen on gold

“We expect gold to rally as weaker economic data ahead tilts the scales toward recession risks, lower real rates and Fed policy easing,” UBS tranche.

Furthermore, beyond monetary policy, central banks also support the precious metal through their purchases of gold bars. According to data from gold.org/goldhub/research/gold-demand-trends/gold-demand-trends-q3-2023″>World Gold Council, over the first nine months of the year, central banks purchased around 800 tonnes of gold, an increase of 14% compared to the same period of 2022. These purchases, which are mainly carried out by emerging countries, such as China.

“Central banks in emerging markets have significantly increased their gold reserves seeking more independence from the US dollar,” explains Swiss private bank J.Safra Sarasin. “Given the ongoing geopolitical fragmentation,” the establishment expects these purchases to remain high.

J.Safra Sasin also points out that gold has also become more attractive to individual investors, citing the case of China with sales of jewelry and gold coins. “The current evolution of the Chinese economy towards a new growth model has generated economic uncertainties, leading to an increase in demand for physical gold among local investors,” she explains. “This trend should keep the price of gold at sustainably high levels,” concludes the bank.