Gold Prices To Remain Elevated For The Rest Of The Year

(MENAFN- Khaleej Times)

Increasing risks from stagflation, ongoing geopolitical crises and continuing investments by exchange traded funds are likely to keep gold prices at elevated levels through the year, the World Gold Council said on Thursday.

“US stagflationary forces and the prospect of lower rates, alongside policy risk, could dominate prices as emerging market demand takes a breather,” the global body said in its monthly commentary.

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A strong rally into month-end saw gold reach $3,429/oz (+4 per cent), and as of the end of August, gold was up 31 per cent for the year. Gold gained in all major currencies, despite a much weaker US dollar. And the positive momentum has carried on in early September.

The WGC's Gold Return Attribution Model (GRAM) suggests major contributors to August price performance were a drop in the US dollar early in the month, continued geopolitical tensions, and strong global gold ETF flows. More recently, a higher chance of a September rate cut has also played a role.

Gold ETF flows provided plenty of support, especially late in the month, posting $5.5 billion (53 tonnes) of inflows, dominated by North America ($4.1 billion) and Europe ($1.9 billion), while Asia and other regions saw outflows. COMEX managed money net longs saw more restrained inflows of $2 billion (+16 tonnes), WGC data showed.

US real rates may become more influential for gold in the near term as US investors grab the baton from emerging markets, and that influence could increase if rates were to fall, analysts say. So far rates have been sticky, but that is more reflective of a growing unease about stagflation.

“Our quantitative analysis of various US investor types suggests that stagflation is of greatest concern to ETF investors, followed by retail bar and coin buyers. Fast money futures investors are more concerned with rate trajectory,” the WGC said.

Now that central banks and Asian investors have stepped back a bit, as indicated by our Gold Demand Trends data, local premia and intraday session returns, a tighter gold-rates relationship could re-establish itself and Western investors (particularly the US) could become more dominant in driving short-term returns.

Should rates across the curve start to drop, a ramp up in gold buying could be triggered in the US.“But we're not seeing that quite yet. In fact, the curve is steepening as the short end drops on Fed cut hopes, but the long end remains high on risk premia and future inflation concerns,” the WGC said.

Futures traders appear more focused on rate dynamics. As the yield curve steepens (driven by lower front-end rates) and inflation fears persist, the interplay between macroeconomic signals and investor behaviour will be key in shaping gold's next move, the WGC said.

“Geopolitical strain and diverging reserve diversification by central banks and sovereign wealth funds have further underpinned demand for gold, while long-end yields and a dimming appeal of traditional bonds have nudged investors toward tangible assets like gold and silver,” Ole Hansen, head of commodity strategy at Saxo Bank, said.

The fundamentals point to further upside, supported by incoming Fed rate cuts, a weaker US dollar, and resilient investment demand. With gold already outpacing major equity indices and with central bank buying adding to the momentum, the precious metal is set to remain a key focus for both global and UAE investors as uncertainty remains.“Ultimately, for long-term investors, gold has clearly justified its position in a diversified portfolio. It offers some stability against risk events while providing a reliable longer-term store of value and, importantly, as a portfolio diversifier. Even in the age of digital assets and complex financial products, a bit of that classic yellow metal can provide balance and reassurance,” said Josh Gilbert, Market Analyst at eToro.

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