(News Bulletin 247) – The precious metal crossed $2,500 and broke its all-time record last week. Between rate cuts by the US Federal Reserve, significant purchases from Asia and the return of ETFs, forces seem to be converging to push gold higher.

While the stock markets have experienced more or less pronounced corrections and rebounds, gold has been breaking records since the start of the year.

Again this summer, the “barbaric relic” as the famous economist John Maynard Keynes called it, crossed $2,500 an ounce on August 16. Last week, the precious metal reached a new all-time high of $2,570.4 an ounce, according to data from investing.com. Since then, gold has given up a little ground, trading at $2,560 an ounce on Monday.

These new highs for gold constitute “a strong signal”, judges Dylan Charrat, of Or en Cash. “While stock markets struggle to reach new highs, gold continues to assert itself as the essential safe haven asset. Global uncertainty, the weakness of the dollar and geopolitical tensions reinforce this trend”, he considers.

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The Fed in support

Beyond these records, the stars now seem aligned for gold to continue its rise. “Gold’s rise in the first half of the year was made possible by massive central bank purchases and Asian purchases, which offset the negative impact of the rising U.S. dollar, rising Treasury yields and outflows from gold-backed exchange-traded funds. Today, all three factors could be working in gold’s favor,” Bloomberg observed in an analysis published on Monday.

Emerging central banks, especially the People’s Bank of China, have indeed continued to acquire gold to diversify their reserves. For their part, Asian households have bought physical gold, such as bars and coins, particularly Chinese households. The latter are acquiring gold because their more traditional investments, such as Chinese stocks and real estate, are not attractive, as real estate in China has been going through a deep crisis for several years.

In addition to these tailwinds, monetary policy expectations have been building in recent weeks. Due to the slowdown in the US economy, investors have begun to expect significant rate cuts by the US Federal Reserve (Fed). The markets are currently predicting 100 basis points (1 percentage point) by the end of 2024.

These rate cuts should mechanically support the demand for gold and its prices. In theory, the evolution of gold is negatively correlated with that of interest rates. The higher the interest rates, the less theoretically gold has appeal, all other things being equal. Unlike stocks (with dividends) and bonds (with coupons), gold does not produce income. Its price is consequently battered by a rise in interest rates, because it then becomes less and less interesting to invest one’s money in gold rather than to place it.

Another positive side effect of rate cuts: they cause the dollar to fall. Which again reinforces the appeal of gold, as with most commodities. Since gold is denominated in dollars, a drop in the greenback makes gold more attractive to investors holding currencies other than the dollar. But currently, with expectations of a rate cut by the Fed, the American currency is at multi-month lows against other currencies, such as the euro.

Jackson Hole strengthens convictions

Last week’s Jackson Hole symposium only reinforced the market’s convictions about Fed rate cuts. Fed Chairman Jerome Powell clearly signaled a first cut in September and struck a decidedly dovish tone.

“A gradual reduction in policy rates can help the price (of gold), but the timing of the next interest rate cut is important,” Naeem Aslam of Zaye Capital said last week.

Last positive factor: investment flows into gold ETFs, index funds backed by gold, have become positive again and are experiencing good momentum. gold.org/goldhub/research/gold-etfs-holdings-and-flows/2024/08″>According to the World Gold Council, July was the third positive month of inflows, with flows of $3.7 billion, the strongest month since April 2022.

This shows that demand for gold from institutional buyers in the market appears to be returning after several difficult months. “The West is waking up to do what Asia did earlier this year,” Ruth Crowell, chief executive of the London Bullion Market Association, told the Financial Times.

All this can only strengthen the conviction of research offices, which have been optimistic about gold for many months. Since April, Goldman Sachs has seen the precious metal reach $2,700 per ounce by the end of 2024, particularly because the precious metal remains attractive to Asian individuals and the metal could benefit from increased fears about the deterioration of the American deficit, in connection with the American presidential election next November.

Citi Bank, for its part, estimated in April that the ounce could even reach 3,000 dollars in the next 6 to 18 months. This is due to a strong physical demand and its attractiveness as a hedge against geopolitical risks, explained the bank’s commodities analysts quoted by CNBC.