Gold stands alone in the entire commodities universe, with the yellow metal now accounting for 100% of its commodity allocation, according to analysts at BNP Paribas.
“Gold has continued to move higher since our analysts’ last quarterly report, against the backdrop of easing U.S. inflation and the likelihood of fiscal cost convergence regardless of who wins the U.S. presidential election,” analysts said in the French bank’s latest commodity outlook. “The question now is, where is gold headed?”
BNP Paribas analysts listed "five major themes" they believe could drive the gold market: geopolitics, the dollar and rates, central bank buying, investor flows and fundamentals. But they warned that while each of these drivers is "very bullish for gold prices," there is a "lack of clear overvaluation drivers."
They explained, “The Fed’s policy reversal and its likely impact on rates and the dollar have been widely predicted, while global geopolitical tensions have been building for some time. Fundamentals, geopolitics, rates and the dollar, as well as continued central bank buying, are all supporting further gains. However, potential catalysts remain scattered.
In its Q4 2024 Global Asset Allocation Outlook report released on September 12, BNP Paribas showed that they are walking the talk in their bullish outlook on gold: the yellow metal now accounts for 100% of its commodity holdings and 7% of its total asset allocation, up 40% month-on-month.
“With the exception of developed market equities, most asset classes have delivered single-digit returns so far in 2024,” they wrote. “Against this backdrop, the BNP Paribas Multi-Asset Portfolio (SGMAP) continues to perform well, delivering strong returns and low volatility. Our focus on U.S. equities, corporate credit and gold enables SGMAP to absorb cyclical volatility.”
Analysts at BNP Paribas said that in an environment of falling commodity prices, Fed policy is more important to the market than the US election. "We are particularly concerned about oil prices, although they should help the disinflation process and help the Fed to ease further, which will be good for bonds. Finally, yield curve steepening is likely to materialize in developed and emerging markets, while Japan may see a flattening of the yield curve due to central bank rate hikes."
They added that a reversal of the yen carry trade "still has a long way to go as this round of market leverage is mainly from the yen rather than from companies or households, which creates obvious market risks."
They said, “We further increased our yen exposure by 8pp to 20% (and reduced our exposure to Japanese equities to zero, primarily on volatility drivers). We further reduced our overall equity exposure by 5pp to 42% and increased gold by a further 2pp to 7% – a result of continued global central bank demand.”
As for the broader commodities sector, BNP Paribas is bearish on oil and base metals, but remains bullish on gold.
“Weak demand for most commodities was a notable feature, leading our commodity experts to revise down their base metals price forecasts (by mid-2025: copper at $9,500 and Brent at $67.5). We reduced our exposure to cyclical commodities by 2 percentage points to zero. At the same time, we increased our exposure to gold by 2 percentage points to 7%, as geopolitical concerns will only further boost central bank demand for gold,” they wrote.
The analysts said gold is “the only commodity that is booming, with huge long positions in the futures market and ETF inflows,” suggesting that even as demand for other commodities weakens, gold’s safe-haven demand remains strong. They wrote:
“A globally synchronized monetary easing cycle and non-Western central bank gold buying are driving gold prices higher. We attribute this trend to two factors: growing concerns about the sustainability of the US-centric global financial system and heightened concerns about sanctions. Global multipolarity and rising public debt suggest that central bank gold buying will continue for a long time, implying steadily higher gold prices in inflation-adjusted terms over the long term.”
“Gold is our favorite asset in the commodities space,” they wrote in their outlook. “Chinese investors drove the March-April gold rally and have become an increasingly important force in the gold market.”
BNP Paribas currently expects spot gold prices to average $2,700 an ounce in the fourth quarter of 2024, rising to $2,725 in the first quarter of 2025 and $2,750 an ounce in the second quarter. They expect spot gold prices to average $2,800 an ounce for the full year 2025.
Article forwarded from: Jinshi Data
