Gold to Shine Bright on Fundamentals, Seasonality & Sentiments
“Gold is money. Everything else is credit” said John Pierpont Morgan some 100+ years ago. Gold is limited in supply. Much of what can be mined has been dug up.
Gold bugs opine that the only way for gold prices is up as fiat money continues to be printed with nothing but institutional promises backing them. As a result, not only is the price of gold inching up, but the value commanded by fiat money continues to contract.
GOLD’S RISE HAS REMAINED UNSTOPPABLE DURING THE LAST TWO YEARS
Gold, as represented by CME Gold Futures, was up 1.45x delivering a stunning 13.5% gain in 2023 followed by a record-shattering 27% gain in 2024.
These stellar returns were delivered with a 20-day rolling realised volatility averaging south of 14% commanding a Sharpe Ratio of more than one.
The World Gold Council analysis shows that gold outperformed US stocks, EM equities, bonds, and commodities. LBMA Gold prices surged by 25.5% while printing 40 all-time highs in 2024 with the most recent high of USD 2,777.80/oz on 30th October 2024.
This remarkable growth was driven by strong demand from central banks and institutional investors combined with rising geopolitical risks.
Source: gold.org
After such a stunning rally these last two years, what to expect from gold in 2025? First, recapping the rationale for gold.
GOLD REMAINS A HEDGE AGAINST SUSTAINED INFLATION, DEBASEMENT, & TRUST DEFICIT
Gold has long been considered a safeguard against economic uncertainties, particularly during periods when confidence in financial institutions and government policies wanes.
This perception is rooted in gold's intrinsic value and its independence from any single nation's economic policies, making it a preferred asset during times of trust deficit.
Several factors have reinforced gold's role as a hedge against trust deficit, key among them being:
• Geopolitical Tensions: Ongoing global conflicts and political instability have heightened investor anxiety, leading many to seek refuge in gold. Its value appreciates when geopolitical risks escalate, reflecting its status as a haven asset.
• Fiscal Policies & Debt Levels: Concerns over rising national debts and fiscal deficits, particularly in major economies like the United States, have prompted investors to turn to gold. Analysts suggest that gold benefits from apprehensions about the trajectory of U.S. debt and deficits, serving as a buffer against potential fiscal crises.
• Inflation & Currency Depreciation: Fears of inflation and currency devaluation have further increased gold's appeal. As a tangible asset, gold is perceived as a store of value that can preserve wealth against the eroding effects of inflation & currency debasement.
Moreover, during periods of financial market volatility, gold has demonstrated its effectiveness as a portfolio diversifier. Its low correlation with other asset classes allows it to mitigate losses during market downturns, providing stability when trust diminishes.
In summary, gold's enduring value and independence from centralized financial systems make it a reliable hedge against trust deficit. Investors seeking portfolio protection turn to gold as a haven.
GOLD HAS HEADROOM TO RISE EVEN HIGHER IN 2025
State Street Global Advisors ("SSGA") cite three primary reasons for being bullish on Gold in 2025. These include (a) Continued central bank purchases, (b) Rising consumer demand in China & India as domestic gold ETFs proliferate, and (c) US monetary easing and the potential for the new Trump administration’s fiscal policies to expand deficits.
Central banks have been accumulating gold at the fastest pace in recent record. Consistent buying in the past three years despite surging prices point to long-term strategic considerations beyond price sensitivity.
Gold’s inverse relationship with the US dollar remains misunderstood. The USD is as strong today as it was at the start of the century, while gold has appreciated 813% in the same period. A strong dollar does not necessarily make gold bearish.
New Trump Administration to be sworn-in later today (20th Jan 2025) also serves as a tailwind to gold prices. During Trump 2.0, the President's proposed tariff policies are likely to accelerate the de-dollarisation trend and be compounded by rising geopolitical risks. Collectively, this will push central banks and consumers to seek shelter in gold.
Source: SSGA.com
SSGA has a base case scenario (with a 50% likelihood) of gold trading between USD 2,600 to USD 2,900 an ounce. It also sets out a bull case with a 30% chance of gold price ranging between USD 2,900 to USD 3,100 an ounce. A bear case alternative (20% chance) of gold prices pulling back to trade between USD 2,200 to USD 2,600 per ounce.
GOLD ETF FLOWS HAVE BEEN ROBUST IN 2025
The GLD ETF has seen substantial positive inflows into the fund so far this year. Barring four days of net outflows, large inflows on 10/Jan and 17/Jan have contributed to additional AUM of USD 579.22 million into the GLD ETF taking the total AUM to USD 76.74 billion.
Post-election results, the GLD ETF witnessed multiple days of fund outflows and those have been more than offset with fresh funds moving into the ETF signalling bullish investor sentiment.
SEASONALITY FAVORS A BULLISH STANCE IN GOLD
Save for February & June, Gold Futures have generated positive returns during the first half of the year delivering 6.6% upside gains on average over the last ten years.
HYPOTHETICAL TRADE SET UP
A confluence of fundamentals, seasonality, and sentiment points to near to medium-term bullishness in gold prices. This paper posits a hypothetical trade setup consisting of a long position in CME Micro Gold Futures contract expiring on 28th April 2025 (MGCJ2025). Each Micro Gold Futures contract provides an exposure to 10 troy ounces.
Both standard-sized gold futures (GC) and the newly launched 1-ounce gold futures offer avenues to express bullish sentiment on the yellow metal. This comprehensive suite of gold futures is tailored to enhance flexibility and precision, empowering investors to capitalize on market opportunities effectively.
• Entry: USD 2,754/oz
• Target: USD 2,880/oz
• Stop: USD 2,670/oz
• P&L at Target (per lot): +1,260 ((2,880 – 2,754) x 10)
• P&L at Stop (per lot): -840 ((2,754 – 2,670) x 10)
• Reward-to-Risk Ratio: 1.5x
MARKET DATA
CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs tradingview.com/cme.
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
Gold bugs opine that the only way for gold prices is up as fiat money continues to be printed with nothing but institutional promises backing them. As a result, not only is the price of gold inching up, but the value commanded by fiat money continues to contract.
GOLD’S RISE HAS REMAINED UNSTOPPABLE DURING THE LAST TWO YEARS
Gold, as represented by CME Gold Futures, was up 1.45x delivering a stunning 13.5% gain in 2023 followed by a record-shattering 27% gain in 2024.
These stellar returns were delivered with a 20-day rolling realised volatility averaging south of 14% commanding a Sharpe Ratio of more than one.
The World Gold Council analysis shows that gold outperformed US stocks, EM equities, bonds, and commodities. LBMA Gold prices surged by 25.5% while printing 40 all-time highs in 2024 with the most recent high of USD 2,777.80/oz on 30th October 2024.
This remarkable growth was driven by strong demand from central banks and institutional investors combined with rising geopolitical risks.
Source: gold.org
After such a stunning rally these last two years, what to expect from gold in 2025? First, recapping the rationale for gold.
GOLD REMAINS A HEDGE AGAINST SUSTAINED INFLATION, DEBASEMENT, & TRUST DEFICIT
Gold has long been considered a safeguard against economic uncertainties, particularly during periods when confidence in financial institutions and government policies wanes.
This perception is rooted in gold's intrinsic value and its independence from any single nation's economic policies, making it a preferred asset during times of trust deficit.
Several factors have reinforced gold's role as a hedge against trust deficit, key among them being:
• Geopolitical Tensions: Ongoing global conflicts and political instability have heightened investor anxiety, leading many to seek refuge in gold. Its value appreciates when geopolitical risks escalate, reflecting its status as a haven asset.
• Fiscal Policies & Debt Levels: Concerns over rising national debts and fiscal deficits, particularly in major economies like the United States, have prompted investors to turn to gold. Analysts suggest that gold benefits from apprehensions about the trajectory of U.S. debt and deficits, serving as a buffer against potential fiscal crises.
• Inflation & Currency Depreciation: Fears of inflation and currency devaluation have further increased gold's appeal. As a tangible asset, gold is perceived as a store of value that can preserve wealth against the eroding effects of inflation & currency debasement.
Moreover, during periods of financial market volatility, gold has demonstrated its effectiveness as a portfolio diversifier. Its low correlation with other asset classes allows it to mitigate losses during market downturns, providing stability when trust diminishes.
In summary, gold's enduring value and independence from centralized financial systems make it a reliable hedge against trust deficit. Investors seeking portfolio protection turn to gold as a haven.
GOLD HAS HEADROOM TO RISE EVEN HIGHER IN 2025
State Street Global Advisors ("SSGA") cite three primary reasons for being bullish on Gold in 2025. These include (a) Continued central bank purchases, (b) Rising consumer demand in China & India as domestic gold ETFs proliferate, and (c) US monetary easing and the potential for the new Trump administration’s fiscal policies to expand deficits.
Central banks have been accumulating gold at the fastest pace in recent record. Consistent buying in the past three years despite surging prices point to long-term strategic considerations beyond price sensitivity.
Gold’s inverse relationship with the US dollar remains misunderstood. The USD is as strong today as it was at the start of the century, while gold has appreciated 813% in the same period. A strong dollar does not necessarily make gold bearish.
New Trump Administration to be sworn-in later today (20th Jan 2025) also serves as a tailwind to gold prices. During Trump 2.0, the President's proposed tariff policies are likely to accelerate the de-dollarisation trend and be compounded by rising geopolitical risks. Collectively, this will push central banks and consumers to seek shelter in gold.
Source: SSGA.com
SSGA has a base case scenario (with a 50% likelihood) of gold trading between USD 2,600 to USD 2,900 an ounce. It also sets out a bull case with a 30% chance of gold price ranging between USD 2,900 to USD 3,100 an ounce. A bear case alternative (20% chance) of gold prices pulling back to trade between USD 2,200 to USD 2,600 per ounce.
GOLD ETF FLOWS HAVE BEEN ROBUST IN 2025
The GLD ETF has seen substantial positive inflows into the fund so far this year. Barring four days of net outflows, large inflows on 10/Jan and 17/Jan have contributed to additional AUM of USD 579.22 million into the GLD ETF taking the total AUM to USD 76.74 billion.
Post-election results, the GLD ETF witnessed multiple days of fund outflows and those have been more than offset with fresh funds moving into the ETF signalling bullish investor sentiment.
SEASONALITY FAVORS A BULLISH STANCE IN GOLD
Save for February & June, Gold Futures have generated positive returns during the first half of the year delivering 6.6% upside gains on average over the last ten years.
HYPOTHETICAL TRADE SET UP
A confluence of fundamentals, seasonality, and sentiment points to near to medium-term bullishness in gold prices. This paper posits a hypothetical trade setup consisting of a long position in CME Micro Gold Futures contract expiring on 28th April 2025 (MGCJ2025). Each Micro Gold Futures contract provides an exposure to 10 troy ounces.
Both standard-sized gold futures (GC) and the newly launched 1-ounce gold futures offer avenues to express bullish sentiment on the yellow metal. This comprehensive suite of gold futures is tailored to enhance flexibility and precision, empowering investors to capitalize on market opportunities effectively.
• Entry: USD 2,754/oz
• Target: USD 2,880/oz
• Stop: USD 2,670/oz
• P&L at Target (per lot): +1,260 ((2,880 – 2,754) x 10)
• P&L at Stop (per lot): -840 ((2,754 – 2,670) x 10)
• Reward-to-Risk Ratio: 1.5x
MARKET DATA
CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs tradingview.com/cme.
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
Full Disclaimer - linktr.ee/mintfinance
Disclaimer
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