Gold bulls celebrate as Fed’s September rate-cut signal reinforces bets on record rally

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Gold’s record-setting rally above US$2,500 an ounce looks to have further to run as the Federal Reserve prepares to cut its target rate next month

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Customers shopping for gold Tsim Sha Tsui, Hong Kong in March 2024. Photo: Jelly Tse

Bloomberg

Published: 4:15pm, 26 Aug 2024Updated: 5:01pm, 26 Aug 2024

Gold’s record-setting rally above US$2,500an ounce looks to have further to run as the Federal Reserve prepares to cut interest rates, traditional drivers such as lower yields return, and Western investors pile back in.

“Everybody thought the Fed was going to be the last to cut, but now they’re getting in line,” said Jay Hatfield, chief executive officer of Infrastructure Capital Advisors, who recently went long on gold options for the first time in years. Chair Jerome Powell’s Jackson Hole speech, which promised rate cuts, was a watershed moment for bullion, according to Hatfield.

Bullion has dazzled this year, setting a procession of records that marked out the precious metal as one of the strongest performers among major commodities. Its ascent came courtesy of strong central-bank buying plus Asian purchases, which offset the drag from a rising US dollar, higher Treasury yields, and outflows from bullion-backed exchange-traded funds. These three drivers may now run in gold’s favour.

Federal Reserve Chair Jerome Powell, Bank of England Governor Andrew Bailey, and Bank of Canada Governor Tiff Macklem take a break during the Jackson Hole symposium on August 23. Photo: Reuters

“That opportunity cost of holding gold is coming down,” said Rajeev De Mello, global macro portfolio manager at GAMA Asset Management. “This very fast decline in real yields, and the weakening of the dollar generally, makes me quite happy to use gold as another currency to be short the dollar.”

Spot gold has rallied by more than a fifth this year, with banks including Goldman Sachs saying as far back as April that prices had the scope to hit US$2,700 an ounce. After Powell’s road map at the Jackson Hole symposium on Friday, 10-year US real yields have retreated to the lowest since December. That benefits gold as it does not pay interest.

Hedge funds and speculators have been adding bullish wagers on Comex, with net-long bullion positions hitting the highest in more than four years on the exchange, according to Commodity Futures Trading Commission data.

There are also signs of a revival in demand for gold-backed exchange-traded funds or ETFs. Holdings in SPDR Gold Shares, one of the leading products, have risen for the eight straight weeks, the longest run of inflows since mid-2020.