In the current year, the rapid rise in gold price continues, which as a process shows signs of stability and significant prospects for strengthening the upward trajectory, without signaling the likelihood of weakening in the short term.
In 2024, the most actively traded futures contracts for the mentioned precious metal were repeatedly fixed at maximum levels. Last Tuesday, September 24, these futures contracts reached a new record of $2,687.30 per ounce. Then the corresponding indicator decreased.
The specified dynamic of gold futures contracts was fixed after the Federal Reserve decided last week to cut interest rates by a half point as part of the initial phase of monetary policy easing.
It is worth noting that the mentioned precious metal has traditionally had the status of a so-called haven asset. Since the beginning of the current year, the value of gold has increased by about 30%. It is worth noting that the pace of this upward dynamic exceeds the 20% rise of the benchmark index S&P 500.
To a large extent, the rise in the price of gold is due to a sharp increase in demand for it from central banks, including institutions in countries such as Turkey, India, and China. This year, financial regulators of the mentioned states have grown their gold piles. The corresponding moves of central banks are related to the desire to abandon the US dollar or reduce the scale of use of this currency.
At the same time, an opinion is currently circulating among investors, according to which the increase in prices for the yellow metal can also be interpreted as evidence that there is still a significant concern in the markets about the state of affairs in the space of the economic system of the United States. It is worth noting that the corresponding alarming sentiments exist against the background of new highs in the stock market, which are generally a positive signal, both concerning the current situation and in the context of prospects.
Within the framework of standard practice, formed by what corresponds to such a concept as historical experience, traders pay increased attention to gold during periods characterized by a high level of uncertainty. In this case, the bet is that the yellow metal in conditions of turbulence, primarily in the economic space, will be able to better cope with the task of preserving value compared to the corresponding efficiency of other assets, including stocks, bonds, and currencies. Traders perceive gold as a guarantee to minimize losses during periods of economic downturn. It is also worth noting that uncertainty is currently what can be called a global characteristic. The current condition of the global economy does not contain unambiguous guarantees that the further dynamic will be exceptionally positive or, at least, will not be catastrophic.
Fed Chairman Jerome Powell said last week at a press conference following the United States central bank’s monetary policy meeting that a significant cut in interest rates by half a point, which exceeded preliminary expectations regarding the actions of the financial regulator, is aimed at preventing further weakness in the labor market.
Some experts say that even after the lowering of the cost of borrowing, the US economy is still not too clear. According to them, the relevant situation indicates that the unemployment rate is difficult to slow down once this indicator is on the growth trajectory. In August, the unemployment rate in the United States was recorded at 4.2%. This indicator is low by historical standards. At the same time, in August last year, the unemployment rate in the United States was 3.8%. It is also worth noting that in July of the current year, this indicator unexpectedly rose to 4.3%. Against the background of the corresponding dynamic, concerns about the risk of a recession scenario in the space of the United States economic system have intensified.
New data on consumer confidence, which was released on Tuesday, suggests that US residents perceive the current state of affairs in the country’s economy through the prism of a pessimistic assessment and also do not show optimism about the further prospects of the local labor market. The Conference Board’s monthly confidence index in September was fixed at 98.7. It is worth noting that after revision, the same indicator for August was 105.6.
Kristina Hooper, chief global market strategist at Invesco, stated that investors are concerned that the 50 basis point cut in interest rates is due to the crisis and that the United States economic system is weaker than it seems.
Uncertainty about exactly what condition the US economy is in and what its prospects are can generate a favorable situation for the price of gold. JPMorgan Chase researchers said in a note published on Monday, September 23, that they expect the price of the yellow metal to continue on an upward trajectory and reach $2,850 per ounce next year. The corresponding forecast is based on confidence that the central bank of the United States will continue to lower the cost of borrowing. This year, the US financial regulator intends to cut interest rates by another half percentage point. The central bank of the United States also plans to lower the cost of borrowing by a full percentage point in 2025.
The beginning of the Fed’s actions to ease monetary policy is a factor contributing to the growth of interest in gold compared to treasury bonds, which in a certain sense compete with the yellow metal for the status of the most reliable haven asset. On Tuesday, the yield on 10-year United States Treasury yields was about 3.7%. It is worth noting that this indicator is more than 4% lower than the figure observed just a couple of months ago.
Will Rhind, chief executive of GraniteShares, stated that there is currently no other way to think about gold except positively.
There has also been a consistent rise in the price of silver this year. The dynamic of the value of this precious metal is traditionally associated with the corresponding movement of gold. In this case, the price has increased by about 34% since the beginning of 2024.
It is worth noting that the rise in the price of silver is evidence of positive sentiments regarding the economic prospects. This thesis is based on the fact that the relevant material is used in the construction of infrastructure and during the production of goods such as electronics, jewelry, and flatware.
Moreover, silver is an important material in the context of the transition to clean energy. Last week, Citi strategists released a report in which it was underlined that, in their opinion, the demand for solar energy and electric vehicles in China as part of the cumulative effect, another component of which is the easing of the Fed’s monetary policy, will contribute to the growth of the price of this metal.
Will Rhind also said that Beijing’s new moves aimed at reviving the economy may cause an increase in the value of precious metals. In this case, it is implied that on Tuesday the central bank of China announced a package of measures to stimulate economic growth. Within the framework of the relevant action program of the financial regulator of the Asian country, solutions such as cutting its benchmark lending rate and reducing the amount of cash that banks need to hold in reserve are provided. It is expected that one of the main results of these measures will be the freeing up of money for lending.
