By INS Contributors
KUALA LUMPUR, Malaysia: In August, gold prices soared to a record $2,531 per ounce, despite starting high after a 5 percent increase in July. Major events included a market rout on August 5, where U.S. stock indices plummeted, and Japan’s Nikkei 225 suffered its worst two-day drop ever, leading to volatile gold trading between $2,360 and $2,460.
On August 8, gold rose nearly 2 percent amid safe-haven demand and expectations for a significant U.S. interest rate cut. By August 16, it surged over 2 percent due to weaker U.S. housing data. The all-time high on August 20 was driven by bets on imminent Fed rate cuts and ongoing geopolitical tensions.
Major Market-Moving Events:
- 5 August: U.S. recession fears from weak July nonfarm payrolls caused global markets to slump. Nikkei 225 saw its worst two-day drop ever (-18.2%). Gold fluctuated between $2,360 and $2,460, ending down 1.5 percent.
- 8 August: Gold rose nearly 2 percent due to safe-haven demand and growing expectations of a significant Fed rate cut. Markets anticipated over 100 basis points of cuts.
- 12 August: Gold increased 1.7 percent ahead of the U.S. CPI report. Market expected a 50-basis point Fed rate cut and responded to heightened Middle East tensions.
- 16 August: Gold surged over 2 percent to a one-month high as weak U.S. housing data pressured the dollar.
- 20 August: Gold hit a new all-time high at $2,531 per ounce amid expectations of Fed rate cuts and awaiting U.S. payroll data revisions and Jerome Powell's Jackson Hole speech.
In August, gold prices continued to rise, reaching an all-time high while staying above key moving averages. This increase was driven by expectations of looser monetary policy, geopolitical tensions, and strong central bank demand. China's net gold imports via Hong Kong rose 17 percent in July, with expectations of continued high demand in August due to new import quotas. The People's Bank of China, the largest gold buyer in 2023, and global central banks added over 130 tons of gold to reserves in 2024. Investors also showed strong bullish sentiment, with increased net-long positions in COMEX gold futures and record ETF inflows.
Gold and Bitcoin are competing assets with different approaches to wealth preservation. Gold has a long history as a hedge against inflation and currency depreciation, while Bitcoin, with its fixed supply, is seen as a hedge against fiat currency emission. Gold typically rises in times of global instability, whereas Bitcoin, often correlated with U.S. indices, tends to fall. In August, gold rose 2.2 percent while Bitcoin dropped 8.5 percent. Year-to-date, Bitcoin has outperformed gold with a 44 percent gain. Bitcoin ETFs, which saw over $200 million in inflows in August, are gaining traction and could surpass gold ETFs, potentially putting downward pressure on gold prices.
‘If this trend continues, Bitcoin ETFs could surpass gold ETFs by the end of the year. In the long term, competition with Bitcoin is likely to exert bearish pressure on gold prices,’ said Kar Yong Ang, global broker Octa analyst.
The outlook for gold in September 2024 appears promising due to three key factors:
- Global Monetary Policy: Expectations for significant U.S. interest rate cuts, with the Fed anticipated to reduce rates by around 220 basis points by December 2025, alongside similar moves by other major central banks, lower the opportunity cost of holding gold.
- Geopolitical Uncertainty: Ongoing conflicts and instability, particularly in the Middle East and Eastern Europe, increase demand for gold as a safe-haven asset. Political volatility, including U.S. elections, also boosts gold's appeal.
- Inflation Risk: Ifinflation remains high, central banks may keep rates elevated, which could impact gold negatively. However, current expectations for lower rates support gold prices.
‘There are so many reasons for the gold price to continue rising in September, that the largest risk for gold bulls seems to be pure complacency. Too many bullish factors are already priced in. If investors start speculating that something is not playing out as planned they may sharply reduce their net-long exposure leading to a major sell-off in gold prices. This is not our base scenario as we believe that gold will continue to trend higher slowly, but we must prepare for periods of above-normal volatility and could see sharp downward corrections. A road to $2,600 per ounce will not be an easy one’, said Kar Yong Ang.
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