Gold market comment

3 Ekim 2024

Today’s market analysis on behalf of Dilin Wu Research Strategist at Pepperstone

After hitting a record high of $2,685, gold has entered a battle between bulls and bears, resulting in price consolidating near the all-time highs. The Fed’s recent 50bp rate cut, and a fairly low barrier to ease by 50bp in the November FOMC meeting, married with rising geopolitical tensions, have fueled the bullish momentum, and should limit the selling in the near-term. However, with gold bulls holding reservations to increase length on the risk of a hotter nonfarm payrolls print, and with Jay Powell adopting a more patient stance on further easing, it is easy to justify the consolidation.

That said, gold holds the highs for a reason, and given the crosscurrents and potential catalyst, on balance, a test and potential break of $2700 seems more probable than a pullback through $2600.

Digging deeper into the key cases that could push gold to challenge $2,700, there are two major risk events that could push it toward that milestone.

First, any sudden escalation in geopolitical conflicts could dramatically increase market volatility. Markets have historically struggled to accurately price risk around geopolitical tensions, so any shifts in rhetoric from conflicting parties that increases the risk of an energy supply shock or involvement from a Western government could significantly shake investor sentiment. With Brent crude being a key risk gauge for the perception of supply, we could easily see gold’s correlation with oil strengthen significantly.

Second, a sharp decline in the pace of hiring in the US payrolls report and/or a rise in the unemployment rate towards 4.4% could see the Treasury yield curve bull steepen and in turn hit the dollar. The playbook for gold can be defined in a more binary fashion than prior NFP reports, where a jobs print that calls the heavily subscribed soft-landing thesis into question should lift gold towards $2700 – conversely the goldilocks scenario, where we see 150k to 180k jobs created, and an unchanged U/E rate, could see the market price a 25bp cut as the default play, and see USD shorts cover, which would weigh on the yellow metal.

We should also consider China’s new shock and awe stimulus measures that at the margin are a threat to gold’s upward trajectory. The government’s strong support for real estate and massive liquidity injections into the stock market are providing traders with alternatives to gold. If the CSI 300 continues to rally post-holiday and the NPC Standing Committee announces more details on swap tools and relending plans in October, boosting market confidence, we could see some bullish capital flow out of gold, weakening its momentum.