Global gold prices fell during Tuesday’s trading. Investors are awaiting a series of US economic data to estimate the size of the expected interest rate cut by the Federal Reserve this month. The dollar stabilized near its highest level in two weeks, reducing the attractiveness of bullion for holders of other currencies.
Kelvin Wong, senior market analyst for the Asia-Pacific region at OANDA, pointed out that gold has not been able to regain levels close to its historical highs due to the lack of new positive catalysts. Wong added that if US data shows a weak economy and the Federal Reserve moves to cut interest rates, gold may rise. Prices may reach $2,640 this year. All eyes are on the US non-farm payrolls report for August, which will be released on Friday.
Economists polled by Reuters expect 165,000 jobs to be added in the United States. Investors are also watching the Institute for Supply Management survey, the JOLTS jobs report and the ADP employment report. Current estimates suggest that traders see a 31% chance of a 50 basis point rate cut at the Fed’s September 17-18 policy meeting, while the chance of a quarter point cut is 69%. Last week, economic data showed that U.S. consumer spending rebounded in July, arguing against a 50 basis point rate cut.
Goldman Sachs said: “Gold remains our preferred hedge against geopolitical and financial risks. We see additional support from the expected Fed rate cuts and ongoing central bank purchases in emerging markets. Based on these factors, we recommend opening a long position in gold.”
Gold as a Safe-Haven Amid Economic Turmoil
Bullion is considered a safe-haven asset that typically thrives in a low interest rate environment, making it an important haven amid economic turmoil. According to a technical analysis conducted by Reuters, gold may test support at $2,473 per ounce. A decline below this level may open the way towards $2,434.
Gold and the dollar now: Spot gold fell 0.2% to $2,494 per ounce, after reaching an all-time high of $2,531.60 on August 20. US gold futures also fell 0.15% to $2,528 per ounce. In contrast, the dollar index rose 0.11% to 101.69 points, which may affect the attractiveness of gold as a safe haven.
Other metals movements: Silver witnessed a decline of 0.3% in spot transactions, reaching its price of $28.43 per ounce. Platinum also fell by 1% to $921.20, while palladium fell by 1% to $968.92.
Gold to have strong performance in 2024: China to boost gains: Gold has had a strong performance in 2024, rising by around 20% since the start of the year. Analysts point to China as a key factor behind the gains, with the People’s Bank of China (PBOC) having bought large amounts of the precious metal for 18 consecutive months.
Although the PBOC has recently refrained from making additional purchases, analysts at Capital Economics see this pause in gold accumulation as temporary. They note that “China is still keen to accumulate gold” amid heightened global geopolitical tensions and economic uncertainty, as well as its ongoing efforts to reduce its reliance on the US dollar.
Gold demand to return on condition prices fall
The People’s Bank of China wasn’t the only one showing interest in gold, with physical demand for gold in China also rising to pre-pandemic levels. According to analysts, this coincides with the People’s Bank of China’s gold purchases, indicating a strong return in demand. Although Capital Economics expects gold demand to increase over the next decade, it suggests that the People’s Bank of China may continue to hold off on buying gold in the near term until prices fall from their record highs. “A combination of cyclical factors suggests weaker demand for gold in China in the near term,” the analysts warned.
“Already high prices are weighing on demand for jewelry,” they added. Fiscal stimulus is expected to provide a much-needed boost to the economy, while the stock market also expected to improve, with domestic stocks currently looking undervalued. “Taken together, gold’s appeal relative to other assets is likely to decline, and safe-haven demand for gold in China is likely to decline,” they said. However, the pause will only be temporary as the country is expected to see a significant deterioration in its economy, largely driven by losses in the property market.
“However, we expect Chinese demand for gold to strengthen going forward and put significant upward pressure on prices over rest of the decade. This is largely due to our belief that fiscal stimulus will only delay, rather than prevent, impending property-led economic slowdown,” the analysts said.
“This will negatively impact the performance of investment alternatives to gold, thereby enhancing the metal’s appeal as a safe-haven store of value.” One of the biggest factors supporting gold is the fact that it still makes up a small portion of China’s reserves, and as it continues to move away from the dollar, Capital Economics believes gold will help fill the void.
