Gold Hits New Record High: Reasons & Future Outlook

On October 18, 2024, the spot gold price once again reached a historical high, touching a peak of $2,722.49 per ounce. The rise in gold prices was primarily driven by concerns over the escalation of conflicts in the Middle East, prompting investors to turn to safe-haven assets.

In addition, the sustained strength of international gold prices is also driven by a variety of factors, including a global wave of central bank interest rate cuts, intensifying geopolitical tensions, and market concerns about the economic outlook in the United States. These factors work together to make gold an important choice for investors seeking to preserve and increase value during uncertain times.

I. Reasons for the New High in Gold Prices

1. Global Central Bank Interest Rate Cuts:

Federal Reserve Rate Cut: On September 12, the Federal Reserve announced a rate cut of 50 basis points, lowering the target range for the federal funds rate to 4.75% to 5%. This was the first rate cut since March 2020, marking the official entry of the Federal Reserve into a rate-cutting cycle. The start of the rate-cutting cycle reduced the opportunity cost of holding gold, enhancing its appeal.

European Central Bank Rate Cut: On September 12, the European Central Bank announced a 25 basis point cut in the deposit facility rate to 3.5%, a 60 basis point cut in the refinancing rate to 3.65%, and a 60 basis point cut in the marginal lending rate to 3.9%. This was the second rate cut by the European Central Bank this year, further promoting expectations of a global loose monetary policy.

Global Central Banks Follow Suit: Sweden, Switzerland, China, South Korea, Thailand, the Philippines, and several other countries have announced cuts in policy rates, with global central banks entering a wave of rate cuts, further strengthening the monetary attributes of gold.

2. Geopolitical Tensions:Middle East Situation: The geopolitical tensions in the Middle East continue to escalate, particularly the contradictions between Iran and Saudi Arabia, as well as the conflict between Israel and Palestine, which have increased market risk aversion.

Korean Peninsula Situation: The situation on the Korean Peninsula is tense. North Korea has destroyed some of the inter-Korean passages, and the South Korean military has conducted responsive firing. North Korea claims to have solid evidence that the South Korean military is the mastermind behind the drone infiltration into Pyongyang. Approximately 1.4 million young league cadres and students in North Korea have signed up to join the military or return to their units. These geopolitical events have further driven up the demand for gold as a safe-haven asset.

3. Economic Outlook Concerns:

US Economic Data: Although the second quarter actual GDP annualized quarter-on-quarter final value for the United States is 3%, slightly higher than expected, market concerns about the US economic outlook have not subsided. The number of initial jobless claims in the United States has dropped to a four-month low, but there is still uncertainty about the market's expectation of a soft economic landing.

Global Economic Growth Slowdown: The expectation of a slowdown in global economic growth, especially the weak economic data from major European and Asian economies, has increased market concerns about a global economic recession, further driving up the demand for gold as a safe-haven asset.

4. Central Bank Gold Purchase Demand:

Global Central Bank Gold Purchases: Central banks around the world continue to increase their gold reserves, especially countries like China and India. In the first half of 2024, global central banks purchased 483 tons of gold, a year-on-year increase of 5%, indicating strong total demand for gold worldwide. Central bank gold purchases not only increase the physical demand for gold but also strengthen market confidence in gold.II. How to Look Forward to the Future Market

Short-term fluctuations:

Technical analysis: At present, the gold price is in an extremely overbought state, with the 14-day Relative Strength Index (RSI) above 76, indicating that a meaningful adjustment may be imminent. In the short term, the gold price may experience a pullback, but the overall trend remains bullish.

Economic data: The upcoming release of the US August Personal Consumption Expenditure (PCE) price index and non-farm employment data will have a significant impact on market sentiment. Stronger-than-expected PCE inflation data may reduce expectations for a substantial interest rate cut by the Federal Reserve in November, leading to a pullback in gold prices; conversely, if the data falls short of expectations, it may further push up gold prices.

Medium-term trend:

Federal Reserve policy: The market generally expects that the Federal Reserve still has room for a 50 basis point rate cut within 2024, which will further reduce the opportunity cost of holding gold, supporting the rise in gold prices.

Geopolitics: Tensions in the Middle East and the Korean Peninsula are unlikely to ease in the short term, and the demand for safe-haven assets will continue to exist, supporting gold prices.

Economic outlook: The uncertainty of the global economic outlook will continue to exist, especially the fluctuations in US economic data, which may have a significant impact on market sentiment. If economic data continues to be weak, market expectations for further interest rate cuts by the Federal Reserve will strengthen, driving up gold prices.Long-term Outlook:

Monetary Overissuance and Fiscal Deficits: Against the backdrop of global monetary overissuance and the monetization of fiscal deficits, the credibility of the US dollar system is being challenged, and the demand for gold as a safe asset is expected to continue to increase.

Global "Dollar Dethronement" Trend: The global trend towards "dollar dethronement" suggests that gold could become the new anchor for pricing, with precious metals potentially gaining upward momentum.

Institutional Forecasts: Several institutions predict that within the next 12 months, gold prices could break through $3,000 per ounce. Representatives at the London Bullion Market Association (LBMA) annual meeting forecasted that gold prices could rise to $2,941 per ounce, while precious metals consulting firm Metals Focus estimates that the spot gold price could reach approximately $3,000 per ounce by 2025.

In summary, the gold price reaching new historical highs is primarily driven by a multitude of factors including the global central bank rate-cutting trend, geopolitical tensions, economic outlook concerns, and central bank gold purchasing demand. In the short term, gold prices may experience technical corrections, but the overall trend remains bullish. In the medium term, uncertainties surrounding Federal Reserve policies, geopolitical situations, and economic prospects will continue to support gold prices. Looking long-term, global monetary overissuance and the "dollar dethronement" trend will provide sustained upward momentum for gold.