Source: Economic Observer
Author: Chen Shan

"The gold trend has taken on a stubborn pace, like the kind that ten oxen can't bring back." Mr. Lu, a gold practitioner, sighed in a WeChat moment post. On October 18, the spot gold in London broke through $2700 per ounce for the first time in history, causing the market to exclaim once again that 'gold has gone crazy'. According to Wind data statistics, this is already the 34th time this year gold has set a new historical high record.

There are no signs of the gold rally slowing down. As of the time of publication, spot gold in London reached a high of $2711.94 per ounce, while the New York Commodities Exchange COMEX gold futures contract reached a high of $2727.2 per ounce, continuously setting new historical records for spot and futures prices.

In the domestic market, on the morning of October 18, the Shanghai Gold Exchange's main futures contract continued its overnight rise and continued to rise significantly, reaching a high of 622.56 yuan per gram, breaking the previous high price; on the Shanghai Gold Exchange, the price of AU99.99 gold also reached a historical high of 620.76 yuan per gram on the same day. Gold concept stocks also collectively strengthened. As of the morning of October 18, at the close, shares of Shandong Yulong Gold rose nearly 7%, Zhongjin Gold Corp.,Ltd., Shandong Gold International rose over 3%, Chifeng Jilong Gold Mining, Sichuan Gold, Hunan Gold, Zijin Mining Group, Shandong Gold and others followed suit.

In the US stock market, overnight gold stocks also collectively rose higher. $Agnico Eagle (AEM.US)$ Rise nearly 5%, $Barrick Gold (GOLD.US)$ Rising nearly 3%. $Newmont (NEM.US)$ Up nearly 2%.

Since the beginning of the year, "record gold price" has become a frequently mentioned term. Analysts widely believe that the continuous impact on historical highs of gold prices is mainly driven by the dual attributes of currency and hedging. On the one hand, central banks around the world have successively cut interest rates, the expansion of balance sheets is expected to strengthen the monetary properties of precious metals; on the other hand, central banks of various countries alternately increasing their shareholding of gold, coupled with the hedging attributes, have brought more bullish support to precious metals.

Dual drive

Currently, gold is telling the story of "buying gold in troubled times".

According to CCTV News, the Israel Defense Forces and the Israel National Security Agency (Shin Bet) issued a joint statement on the evening of October 17th local time, confirming the death of Hamas leader Yahya Sinwar in an Israeli military operation in the Gaza Strip.

Some analysts suggest that the gold price has broken through $2700 per ounce for the first time, as concerns over the Middle East conflict have prompted investors to flock to safe-haven assets.

Guangda Futures Research Institute's Research Director Zhang Dapeng told Economic Observer Network that the unrest caused by geopolitical factors in the Middle East, as well as the Korean Peninsula and other areas, has made the market uneasy, with geopolitical factors providing strong support for recent gold prices.

"The sound of gunfire, the gold price goes up." Huaxia Fund also believes that the continued tension in geopolitical situations supports the investment value of gold. Firstly, the friction between Israel and Iran has intensified, exacerbating concerns about a broader conflict erupting in the Middle East. In addition, tensions in the Korean Peninsula have escalated again, raising global geopolitical risks and increasing safe-haven demand.

Apart from geopolitical factors, another driving force behind the gold price is the global wave of interest rate cuts initiated by central banks.

On October 17th local time, the European Central Bank decided to cut all three key interest rates by 25 basis points, marking its third rate cut of the year and the second consecutive rate cut. The main purpose of the consecutive rate cuts is to further stimulate European economic growth.

On the evening of October 17th Beijing time, the US Census Bureau released US retail sales data for September, showing a 0.4% month-on-month increase in US retail sales. Excluding autos and gasoline, retail sales increased by 0.7% year-on-year, both exceeding market expectations. Data from the US Department of Labor showed that the number of initial jobless claims in the US last week was 0.241 million, lower than market expectations.

After the release of US retail sales and initial jobless claims data, traders lowered their expectations for a Fed rate cut. However, analysts suggest that signs of US economic recovery may not deter the Fed from cutting rates again next month, but it may strengthen expectations for a 25 basis points rate cut.

Futu Futures' senior strategy analyst, Zhang Zhongyun, also believes that the recent strong rise in gold prices is mainly due to the opening of the Fed rate cut cycle on one hand, and the tendency of global geopolitical conflicts to escalate and the continuous escalation of tension on the other.

Bullish sentiment is common.

Since the beginning of this year, looking at the London spot gold prices, the price has risen by nearly $650 per ounce from around $2063 per ounce at the beginning of the year, with a cumulative increase of over 30% during the year.

Economic Observer Network found that currently, there are mostly bullish views within the industry regarding the future gold prices.

China Zheshang Bank's Precious Metals Trading Department stated in a report that the trend of gold prices in the first three quarters of this year has largely deviated from the rigid thinking of the past decade, with weak or even disappearing correlations with interest rates, the US dollar, and even supply and demand. It emphasizes the resurfacing of its unique currency substitute property and hedging property that had been gradually forgotten over the past decade.

Looking ahead to the fourth quarter's gold trend, China Zheshang Bank's Precious Metals Trading Department believes that there is still a lot of uncertainty in the market. The pace and extent of the Fed's rate cuts, the progress and results of the US presidential election, and more importantly, the global asset market sentiment changes driven by China's combination of policies will all have an impact on the fluctuations in gold prices. In addition, the geopolitical issues in the Middle East will be the most certain factor supporting gold prices in the fourth quarter.

New Century Futures also pointed out that, currently, the logic that has driven the current rise in gold prices has not reversed. With the new geopolitical environment and the background of political uncertainty in the US, central banks continue to increase their gold holdings. Coupled with the Fed entering a rate-cutting cycle, it is expected that precious metals will mainly see more volatility.

Kaiyuan Securities stated that October 2024 is a crucial month before the US presidential election, where overseas investors may once again speculate on the expected election results and the pace of Fed rate cuts. In December, the Fed's rate cut validation window will appear, making the market more sensitive to economic weakening data. Considering the slow pace of rate cuts, with an expected 100 basis points by the end of the year, there is a possibility that the idea of an economic soft landing may be proven wrong quickly, leading to rapid trading as the economy cools. Therefore, gold still presents a buying opportunity in October-November, and there may be a second wave of price increases in the first half of 2025.

Zhao Dapeng believes that with the approaching US presidential election, the market's attention to the election is increasing, which also affects the trading of the gold market. Therefore, the current macroeconomic event risks are also being priced in the market. Therefore, at this current time point, in addition to the Federal Reserve's interest rate reduction being less than expected and the overcrowding of long positions, there is also no more convincing reason for the market to continue to be short in gold, so it is advisable to maintain a cautious optimism towards the future trend of gold.

Editor/Somer