The spot price of gold is approaching $2,800, and has climbed to a record high of $2,782.2 per ounce before press time, with a year-to-date increase of more than 37%, higher than the 22% increase in the S&P 500. The main factors driving the rise in gold prices include the US presidential election, war risk aversion, expectations of interest rate cuts, and the central bank's increased gold reserves.
The spot price of gold continues to break new highs, approaching the $2,800 mark before press time. According to TradingView data, the spot price of gold climbed to a historical high of $2,782.2 per ounce and is now at $2,778.2 per ounce, up 1.18% yesterday and 37.4% so far this year, higher than the 22% increase in the S&P 500 index, making it one of the best performing assets this year.
Multiple factors support gold prices
Gold prices have been rising recently. Ole Hansen, head of commodity strategy at Saxo Bank, pointed out that the main driving factors include: fiscal instability, rising safe-haven demand, central banks increasing gold reserves, Chinese investors turning to gold due to record-low savings rates and concerns about the real estate market, and increased uncertainty surrounding the recent U.S. presidential election, among others. Dongqu made additional comments on each point.
1) Uncertainty surrounding the U.S. presidential election
The U.S. presidential election will be held on November 5, and the unpredictability of swing state elections adds to market instability, prompting investors to turn to gold as a safe-haven asset. Hansen stated:
Political uncertainty in the U.S. is the main reason driving up safe-haven demand.
Additionally, Forex market analyst Fawad Razaqzada stated that the uncertainty surrounding the U.S. election is supporting gold prices in the short term, as gold remains a classic safe-haven tool for dealing with market volatility.
2) War and safe-haven
Since October of last year, Israel has engaged in conflicts with surrounding organizations or countries such as Hamas, Iraq, and Lebanon in the Middle East, while the prolonged war between Ukraine and Russia remains unresolved. Recently, North Korea sent troops to support Russia, escalating the Ukraine-Russia war towards internationalization. South Korea has stated that if North Korea intervenes in the Ukraine-Russia war, Seoul will consider providing weapons to Ukraine.
In the context of escalating regional conflicts towards internationalization, the safe-haven value of gold is gradually increasing.
3) Expectations for rate cuts
Market expectations for Fed rate cuts have driven the rise in gold prices. Currently, the CME Fedwatch tool shows that the market predicts a 99% chance of a 25 basis point cut in November, with a 1% chance of no cut. Since gold itself does not yield interest, a rate cut will lower the opportunity cost of holding gold, thereby increasing its attractiveness to investors.
Despite the recent strengthening of the dollar and rising long-term bond yields, which theoretically should diminish the attractiveness of non-yielding assets like gold, gold prices continue to climb. In this regard, Jeff Jacobson, an analyst at 22V Research, stated that this demonstrates a strong and powerful bullish sentiment in the market for gold.
Given the robust upward trend in gold, it suggests there may still be considerable room for further gains.
However, Razaqzada expressed concerns:
If yields and the dollar maintain their current momentum, the short-term outlook for gold may be under pressure, though no related signs have yet been observed.
4) Central banks increasing gold reserves
Global central banks have significantly increased their gold holdings, especially emerging markets looking to reduce dependence on the dollar due to geopolitical tensions. This strong demand provides important support for gold prices this year.
Analysts are worried about overheated market sentiment
However, some analysts suggest that investors should remain cautious to avoid increasing investment risks due to overly high market sentiment.
Jay Kaeppel, a senior research analyst at SentimenTrader, stated that despite several favorable trend signals for gold, prices may experience a 'parabolic surge' similar to the late 1970s to early 1980s. In other words, gold could rise to unsustainable highs, ultimately forming a bubble that will burst. Kaeppel warned:
'There is a significant possibility of a correction in gold prices in the coming weeks or months.'
Rick Bensignor of Bensignor Investment Strategies holds a similar view, recently selling about half of his gold position at $2,700 per ounce, and reminded investors 'not to be misled by the media hype around gold.'
Bitcoin is less than $200 away from its previous high
It's worth mentioning that Bitcoin, recently dubbed 'digital gold', has also performed well, surging past $70,000 yesterday and continuing to aim for previous highs. This morning, Bitcoin peaked at $73,620, just $157 shy of its all-time high of $73,777, almost in sync with gold's upward trend.
As of press time, it was reported at $72,279, up 1.8% in the last 24 hours and nearly 8% over the past week.
