Gold climbed to a two-week high on Monday on renewed buying of the metal by China’s central bank, further turmoil in the Middle East, and expectations of another US Federal Reserve rate cut.
Spot gold rose 1.3% to $2,667.61 per ounce by noon EDT, the highest since Nov. 24. US gold futures, meanwhile, gained 1.2% to 2,690.60 per ounce in New York.
Earlier in the day, bullion had advanced as much as 1.6%, after the People’s Bank of China – a major buyer of the metal – announced that it has resumed purchases after a six-month hiatus.
“The market is getting hopeful that we could see other central banks follow suit and we could see a resumption of record territory buying,” said Bart Melek, head of commodity strategies at TD Securities.
Traders were also monitoring developments in Syria, which saw its ruling dynasty collapse over the weekend, and some believe this could further destabilize the Middle East region. “The government’s collapse in Syria could see haven demand flowing in,” ANZ Group Holdings said.
Also supporting gold is the anticipation of another interest rate cut by the US central bank. Traders are currently pricing an 87% chance of another 25 bps rate cut at the Fed’s Dec. 17-18 meeting, according to Reuters.
“The latest November nonfarm payroll confirms that rebalancing continued in the US, which will continue to support the Fed’s easing bias,” ANZ analysts added.
Focus now turns to the US consumer and producer-price reports due later this week, which are expected to show little increase in inflation pressures. The figures are among the last key indicators before the Fed’s meeting next week.
Gold has been one of the biggest winners in 2024, up almost 29% year to date. This is despite a sharp retreat following the US election, as traders began selling off gold in anticipation of higher inflation and a slowdown of the Fed’s monetary easing.
However, according to a new report by Sprott Asset Management, the recent pullback represents a healthy consolidation, as the sector appeared overbought leading up to the election.
“Following the election, which resulted in a red sweep, investment funds may have been pushed to liquidate, unwind their positions, sell their gold hedges and rotate,” writes Edward Bonner, investment associate at Sprott and author of the report.
Despite short-term pressure on the gold price and consistent outflows from gold ETFs, the firm has maintained its long-term bullish outlook, noting that the “selling pressure appears to be running out of steam as the market completes its rotation.”
“It’s been a rough few weeks. But these extreme moves, by their nature, tend to burn themselves out. In the short term, we have likely hit selling exhaustion on gold,” added Paul Wong, market strategist at Sprott.
(With files from Bloomberg and Reuters)
