Gold - patient, but opportunities seen within a $145 range
The big picture on gold is that price is in wait-and-see mode, and assessing what comes next in US economic trends, Fed policy and EM central bank gold purchases. The clearly defined range of $2430 to $2285 reflects this patient stance, although, within the $145 range, there are moves being made that traders are capitalizing on. Still, I expect we’ll see these levels hold until we get a more immediate need to reweight gold allocations higher in the broad portfolio. The consolidation in the set-up reflects the fundamental picture perfectly, where the dominant theme has been the PBoC lowering purchases in April and then fully refraining from adding gold holdings to its total reserve in May. Perhaps the PBoC want to see the price closer to $2000 before resuming buying again – however, other EM central banks are still in the mix, and adding gold to their reserves.
The US economic picture is still humming along nicely, and the Fed seemingly in control, with consumption still rosy and labour markets not at the levels where we start to ramp up a recession probability as our base case for the coming 12 months - a big signal to buy gold and what could drive the price well above $2500. Maybe that comes, and perhaps the recent underperformance in US small caps (i.e. the Russell 2k) is indicative of further economic cool, with small caps weighed down by a higher-for-longer Fed policy setting, as well as refinancing risk. We also see some support from the US interest rates markets, where we can look at markets implied view for Fed easing through 2025 (through SOFR Dec 2024 -Dec 2025 contracts) and see almost four cuts priced – increased rate cut expectations is supportive for gold upside, where the pricing offers a view that the Fed will reduce rates to a more neutral setting of 3.5% over time. However, should the market get any sense that the Fed will need to go beyond neutral and to stimulate the economy through lower rates and balance sheet expansion then it's on for gold. For now, gold goes quietly about its business, and for a new trend to develop may take time, so for now we wait and trade the moves with the $2430 to $2285 range.
The US economic picture is still humming along nicely, and the Fed seemingly in control, with consumption still rosy and labour markets not at the levels where we start to ramp up a recession probability as our base case for the coming 12 months - a big signal to buy gold and what could drive the price well above $2500. Maybe that comes, and perhaps the recent underperformance in US small caps (i.e. the Russell 2k) is indicative of further economic cool, with small caps weighed down by a higher-for-longer Fed policy setting, as well as refinancing risk. We also see some support from the US interest rates markets, where we can look at markets implied view for Fed easing through 2025 (through SOFR Dec 2024 -Dec 2025 contracts) and see almost four cuts priced – increased rate cut expectations is supportive for gold upside, where the pricing offers a view that the Fed will reduce rates to a more neutral setting of 3.5% over time. However, should the market get any sense that the Fed will need to go beyond neutral and to stimulate the economy through lower rates and balance sheet expansion then it's on for gold. For now, gold goes quietly about its business, and for a new trend to develop may take time, so for now we wait and trade the moves with the $2430 to $2285 range.
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