Gold prices continued their record run on Monday, hitting an all-time high amid strong US economic data and increasing geopolitical tensions.
Spot gold prices It rose 0.5% to trade at $2,342 an ounce at around 11:45 a.m. London time, after briefly hitting a new record high of $2,353 earlier in the session. The yellow metal has repeatedly hit all-time highs in recent weeks.
For some on Wall Street, gold price strength is expected to continue until at least the second half of the year. Citi has previously described the asset as a “recession hedge” in the developed market, while others have noted that volatility caused by the ongoing wars in Ukraine and the Gaza Strip could provide further support.
But not everyone is convinced that gold prices will continue to rise.
“I think there are two factors,” Bob Parker, senior adviser at the International Capital Markets Association, a trade body, told CNBC's “Squawk Box Europe” on Monday.
“The first factor is what I call the catch-up effect, where if you actually look at the ratio of gold to global stock markets last year and the beginning of this year, you will find that gold has been significantly underperforming.”
“So, there's a catch-up effect. Investors look at the underperformance of gold and therefore increased exposure to gold. And that's actually linked to the correlation between gold and Bitcoin — and one can get into a debate about whether that's beneficial or not — but the fact is that “There is a relationship between Bitcoin and gold.”
“The other factor, where data is very difficult to get, is that I think some central banks have made purchases, particularly from Asian central banks, which has led to an increase in their asset allocation in their gold reserves.”
An employee handles one-kilogram gold bars at YLG Bullion International Co.'s headquarters. In Bangkok, Thailand, on Friday, December 22, 2023.
Chalini Thirasoba | Bloomberg | Getty Images
Gold, usually considered a “safe haven” asset in times of financial uncertainty, rose despite higher interest rates and a relatively strong US dollar.
Looking ahead, Parker said gold fundamentals appear to be painting a bearish picture, citing a strong US dollar, rising bond yields, doubts creeping into the Fed's interest rate cut plans and “reasonably” low inflation.
“All of these factors actually suggest that the upside in gold, frankly, is minimal and I think gold is now very vulnerable to a setback,” Parker said.
Market participants are closely monitoring Federal Reserve officials' comments about the expected number of interest rate cuts that are likely to take place this year.
In line with expectations, the US central bank last month kept interest rates steady for the fifth meeting in a row, and kept the benchmark overnight borrowing rate at 5.25%-5.5%. The Fed also indicated that it still expects cuts of three-quarters of a percentage point by the end of 2024.
Since then, Fed officials have raised the possibility of cutting interest rates to zero if inflation remains steady and March job creation comfortably beats expectations, which could delay Fed rate cuts expected this year.
Silver outperforms gold?
“We have been very bullish on precious metals for a while, so obviously this is great, but even we are in A bit confused about the power of gold.” ” on monday.
“What's interesting about gold, and what I think is very encouraging in the medium term, is that gold's momentum has completely decoupled from its traditional correlation with real interest rates and the US dollar.”
Gold appears to be getting some support from investors “who are looking much further ahead” on issues such as debt sustainability, Sheng said. Like Parker, Cheng also highlighted the role of central bank demand in boosting gold prices.
“Let's not forget the central banks around the world, especially of course [those of ] China, India, [and] Sheng said central banks in emerging markets have been steadily accumulating gold.
“What may be even more exciting now is the reaction we are seeing in other precious metals, particularly silver, which is finally starting to catch up. But it is still a long way from its all-time high of $50 an ounce. Even in 2011,” he added. .
Gold and silver prices have traditionally shown a strong positive correlation, although silver is sometimes described as the “poor cousin” of gold.
Silver looks well-positioned to outperform gold in the second half of the year, analysts previously told CNBC.
