The Fed, the Macro, the Vibe… It Weighs on Gold Now, but Wall Street Guns are Bullish for 2024

At AUD $2,967, gold’s price is weighed down today by extenuating macro circumstances
Still, Goldman Sachs and JP Morgan are seeing a bright future for the yellow metal
Meanwhile, a +200pc burst up the charts for OzAurum turned lithium-digging heads

Our Gold Digger column wraps all the news driving ASX stocks with exposure to precious metals.

There’s pressure on gold prices as we head towards the weekend, with the precious metal’s arch nemesis, the US dollar Index (DXY) having a bit of a break upwards and to the right with multi-month highs, blowing a big, fat raspberry to risk assets everywhere.

And that means safe-haven narrative assets, too – namely everyone’s favourite yellow metal.

The gold price has, in fact, largely been trading sideways in recent weeks. This week, it’s fallen by another half a per cent to US$1,909.26 an ounce (AUD: $2,968.12) at the time of writing.

The greenback’s strong performance follows some hot CPI inflation and retail sales data in the US this week, along with lower-than-expected unemployment claims, meaning the US economy is showing quite a lot of resilience right now.

As Eddy noted in his morning Market Highlights column:

Most analysts believe that a series of strong data coming out of the US in recent weeks will encourage the Fed to hike rates in November to tame sticky inflation.

That has sent bond yields soaring lately, which has hurt the price of gold because gold doesn’t pay any regular income like bonds.

Investors Say They’ll Stick With Gold as Fed Cycle Heads for Endhttps://t.co/AWFh9E2tcY #Gold #Mining #Metals #Investing #Au

— Stratabound Minerals Corp. (@Stratabound_SB) September 7, 2023

And ah look, here’s one of those analysts Eddy was talking about, with some timely commentary that’s landed in the crowded Stockhead inbox…

Over to you, then, Denys Peleshok, Head of Asia at CPT Markets:

“The potential for the Federal Reserve to keep interest rates high for longer could continue to weigh on gold prices which have been declining since their peak in May this year.

“Current market sentiment could continue pushing traders toward bonds. Yields on both the 2-year and the 10-year treasury bonds remain near this year’s high despite some fluctuation during the last few days.

“Gold prices could continue to see some volatility during the coming days as traders react to the US economic data releases. The resilient US economy could also continue to affect the market’s direction as traders could adopt a more risk-on approach, leaving gold behind.”

HOWEVER, want some golden price predictions?

Here’s the good news, though. The big boys and girls on Wall Street are still bullish mid-to-longer term.

Goldman Sachs is one, and was just recently predicting an average gold price of US$2,133 per ounce (about AUD $3,300) for 2024.

That’s higher than the average consensus forecast of US$2,100 per ounce for 2024 made by plenty of other analysts, but not fellow financial titan JP Morgan.

The Monopoly Board Man company’s price prediction for next year (albeit its peak, by the end of Q4 2024) is US$2,175 per ounce. And old JP reckons it’s only going to surge from there – into record territory around US$2,600.

That’s nice, but pffft… hold my beer, reckons the moneybags US mining investors Goehring and Rozencwajg, as we noted in a recent column or two. On a slightly longer timeframe (“this decade”) G&R are suggesting… wait for it… that a US$14k per ounce gold price is not out of the question in a bullish market.

And the firm not only believes that price for the “asset with the most potential this decade” is possible, but “highly likely”.

As boring as the Gold price has been of late, look at the bigger picture.

It shows Gold prices are consolidating not too far from striking record price highs.

Waiting for the next event to trigger a rush into precious money — which propels us into unchartered price territory! pic.twitter.com/zdckphbZEU

— Peter Spina GoldSeek | SilverSeek (@goldseek) September 11, 2023

Also… investor holdings are highest in more than a decade

And that’s another JP Morgan bit of positive spin.

It comes from a recent report from the firm (highlighted by Kitco News) that uses analysis drawing from World Gold Council data up until the end of 2022 and projecting it via estimates, and actual semi-complicated maths, well into this year.

Per the Kitco article:

The [JP Morgan] analysts used data from the World Gold Council covering up until the end of 2022, and created an estimate running to the end of Q2 2023 by agglomerating the reported gold purchases by central banks and private investors.

Then, they divided the total stock of gold holdings for investment purposes by the stock of financial assets including cash, equities and bonds held by private nonbank investors globally, resulting in a new gold allocation metric.

The upshot is – and it’s partly atrributed to aggressive buying of the precious metal from central banks* since the Covid pandemic – we are at the stage where gold investors have allocated the largest percentage of their portfolios to the asset since 2012.

* And let’s not forget, too, that China has been adding gold to its coffers more aggressively than Smaug and Scrooge combined this year…

It added to its gold reserves for a 10th straight month in August as it slowly but surely diversifies its path away from the US dollar.

China adds 29 tons of Gold to balance sheet in August, cuts US Treasury bonds to a 14-month low.

– 217 tons of gold purchased in last 10 months, China currently holds 2,165 tons

Per Bloomberg. pic.twitter.com/QqjuEEQFPd

— Dylan Holy (@realDylanHoly) September 8, 2023