Source: Finance Federation Author: Huang Junzhi
① Parker said that the rise in gold prices was easily frustrated; ② gold was not supported by fundamentals due to rising US bond yields, the strengthening of the US dollar, and the tightening of the Federal Reserve's policy; ③ given last year's poor performance, the stock's recent rebound was driven by a “catch-up” effect.
As the price of gold reached an all-time high of $2,365.3 per ounce this week, gold is back in the spotlight, which has also inspired bullish expectations for the next trend in gold prices.
For example, David Rosenberg (David Rosenberg), a top economist in the US and president of Rosenberg Research (Rosenberg Research), also previously believed that the rise in gold was not over. He expects that as central banks begin to cut interest rates, the price of gold will rise by another 15%, and the maximum increase may reach 30%.
Furthermore, Ed Yardeni (Ed Yardeni), a long-time Wall Street bully and president of investment consulting firm Yardeni Research, also believes that this rise will continue, especially if inflation makes a comeback. He anticipates that by the end of next year, the price of gold may rise to a high of 3,500 US dollars.
However, Bob Parker, a senior advisor to the International Capital Markets Association (ICMA), warned that it is unlikely that the price of gold will rise further.
“I think gold is now very vulnerable to setbacks,” he said in an interview. “Although the price of gold has risen by nearly 14% since this year, there are no fundamental factors supporting the rise in gold prices.”
According to Parker, there are three factors that could end the record rise in gold prices.
First, the trend of gold is often the opposite of interest rates. Although the market expects the Fed to cut interest rates (three times), strong economic data may cause the Fed to maintain higher interest rates for a longer period of time, which may curb the rise in gold prices.
ING Bank (ING Bank) also shared this view: “If the Federal Reserve continues to adopt a cautious easing policy, the price of gold may fall back. We expect the price of gold to continue to fluctuate over the next few months as the market reacts to macro drivers, geopolitical events, and the Federal Reserve's interest rate policy.”
Second, considering that gold does not accrue interest and treasury bond yields rise, gold will weaken relatively. This means its appeal will be influenced by fixed-income safe-haven products such as government bonds, as they provide attractive returns and have very little risk.
This week, the 10-year US Treasury yield reached a new 2024 high as investors readjusted the possibility of cutting interest rates this year.
Third, the strengthening of the US dollar is a traditional gold headwind, and this headwind does not seem to abate. The data shows that, like bond yields, the US dollar is soaring due to the tightening of monetary policy, and the exchange rate of the US dollar against almost all foreign currencies is rising this year.
Why is the price of gold rising?
Since there are no fundamentals to support the rise in gold, Parker instead believes that the current surge in gold prices is due to last year's lackluster performance.
He said, “If you look at the ratio of gold to global stock markets last year and the beginning of this year, you will find that gold's performance is seriously lagging behind. As a result, there is a catch-up effect, and investors are watching the poor performance of gold, thus increasing their exposure to gold.”
He also pointed out that gold is closely correlated with Bitcoin, although analysts disagree on how much the latter means. This cryptocurrency has risen 56% since this year.
Parker said that central banks have always been major buyers of gold because many central banks are trying to adjust the composition of their foreign exchange reserves, which has increased the continued demand for gold.
edit/lambor