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July 17, 2024
After reaching an all-time high price in late May, gold has been trading at over $2,300 per ounce.
Such stability is attractive for investors.
This price support comes from different investor groups. Starting from retail buyers and ending with central banks.
That’s not a coincidence that investors of all calibers are piling into gold. They are following key market signals that support gold prices.
Don’t worry if you missed the initial wave of this gold bull market. There are more catalysts ahead for the yellow metal that are worth watching this year.
First, a quick overview of the recent buying activity.
Gold exchange-traded funds (ETFs) posted positive net inflows for the first time in a year. This May, 8.2 tonnes of gold, most from Europe and Asia, were added to the ETFs’ holdings.
In Asia, China is showing a strong appetite for gold. As of the end of May, the metal priced in yuan was the best-performing asset with over 15% gain year-to-date. The country is shifting its focus from a collapsing real estate market into more stable investments.
China’s central bank has also been adding gold into its reserves at a record pace. Last year, the bank bought 224.9 tonnes of gold and 29 tonnes this year.
China’s gold reserves now account for 4.93% of the total reserves – the highest level ever.
The country’s central bank is unlikely to sell its reserves without an urgent need, so we don’t expect massive selling activity anytime soon.
On top of that, gold will be sensitive to these crucial indicators.
U.S. consumers showed weakness in retail sales and elevated delinquency rates.
These do not bode well for the economic health of the world’s largest economy. With inflation still over the 2% target, consumers will continue facing pricing pressures.
That was expected from the Fed's higher interest rates. However, at some point, the bank of last resort will cut rates. That will be either a victory over inflation or a desperate need to support the economy.
Either way, lower rates will shift investors' focus from high-interest-rate bonds and savings accounts to other assets. In case of recession, gold will be their choice.
The unemployment rate and job openings are other vital indicators to watch. So far, these have been positive, but they still are the only things holding the economy together.
This election year tends to be good for employment numbers, but this tailwind may quickly turn change after the presidential campaigns are over.
If the unemployment rate keeps rising, that will be another bullish indicator for gold.
The Conference Board LEI is another reliable indicator of economic activity. This measure went negative during the latest three recessions. Today, it is still in contraction, but we aren’t seeing a crisis yet.
This indicator can’t stay depressed for too long without severe consequences. Its negative readings are bullish for gold. After all, the yellow metal is the ultimate hedge against recessions, because it tends to gain in price during uncertain times.
Similar to what they did during the dot-com bubble of the late 1990s, investors keep pushing tech stocks higher. It’s hard to tell whether artificial intelligence stocks will correct or collapse. Still, a reality check is coming one way or another.
The Fed will likely take supportive measures in case of market collapse. These will likely be inflationary and positive for gold.
It’s hard to imagine a scenario in which the Fed will keep interest rates higher for much longer. Canada and the European Central Bank have already started cutting rates, and other developed nations will likely follow suit.
Once the Fed joins the action, its high-interest-rate bonds will become less attractive to investors. Hence, a shift towards other assets is inevitable. In this case, stocks will be at the top of the list for many investors. However, given the overvaluation of certain sectors, we wonder if value-centric investors will be buying. Gold will be their next choice, in our opinion. And if that coincides with a recession and the inevitable tech correction, gold will be the go-to option for many.
At the Canadian Mining Report, we keep our readers updated on the latest macroeconomic trends.
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