Gold bulls celebrate Jackson Hole as Powell clears a path higher

(Bloomberg) — Gold appears to have set a record high above $2,500 an ounce and looks to have more to come, as the Federal Reserve prepares to cut rates, traditional factors such as lower yields are returning and Western investors are confused again.

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“Everybody thought the Fed would be the last to taper, but now they’re lining up,” said Jay Hatfield, chief executive of Infrastructure Capital Advisors, which recently traded gold options for the first time in years. President Jerome Powell’s Jackson Hole speech — promising rate cuts — was a watershed moment for bullion, according to Hatfield.

Bullion has dazzled this year, setting a procession of records that have marked the precious metal as one of the strongest performers among major commodities. Its rise in the first half came on strong buying by central banks and Asian purchases, which offset the frequency from a rising US dollar, higher Treasury yields and outflows from exchange-traded funds supported by bullion. Now all three drivers could make a run for gold.

“That opportunity cost of owning gold is going down,” said Rajeev De Mello, global macro portfolio manager at GAMA Asset Management SA. “This very rapid decline in real yields and the weakening of the dollar in general makes me very happy to use gold as another currency to short the dollar.”

So far in 2024, spot gold is up more than a fifth, as banks including Goldman Sachs Group Inc. (GS), saying as early as April that prices had the possibility of reaching $2,700 an ounce. After Powell’s roadmap at the Jackson Hole symposium on Friday, US 10-year real yields retreated to their lowest level since December. This benefits gold as it pays no interest.

Among investors, interest has become more widespread. Hedge funds and speculators added bullish bets on the Comex – with net long bullion positions hitting their highest in four years, according to Commodity Futures Trading Commission data.

There are also signs of reviving demand for gold-backed ETFs. Holdings in SPDR Gold Shares, one of the top products, have expanded for eight consecutive weeks, the longest period of inflows since mid-2020.

To be sure, even as Western investors flock to the metal, prices may be vulnerable to weaker consumption in Asia, where high prices have hurt demand. China’s central bank recently halted its monthly purchases, weakening two of the pillars that helped lift gold in the first half of the year.

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For now, Citigroup Inc. (C) sees inflows into ETFs expanding “significantly” over the six- to 12-month period, with demand supported by looser monetary policy as well as a potential increase in volatility amid recessionary risks. Gold could reach $3,000 by mid-2025, the bank said in a note ahead of Powell’s address. Spot bullion was last near $2,525, near the top.

The market can expect strong ETF flows as well as ongoing demand from speculators when the Fed actually makes its first rate cut, according to UBS Group AG, which sees prices at $2,600 for the final quarter of 2024. Rising geopolitical risks should also boost demand. for portfolio hedges, said Wayne Gordon, commodities strategist at UBS Global Wealth Management.

“It’s notable that people are actually starting to move into that side of physical gold ETFs now,” said Ryan McIntyre, managing partner at Sprott Inc., a Toronto-based precious metals and critical minerals asset manager. with assets under management of $31.1 billion. “Buying via ETFs will be a big part of the gold story.”

“With the help of Jack Wittels.”

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