In spite of gold’s noticeable pause in momentum over the last several weeks, it continues to be listed among the highest-performing assets of 2024, bolstered by economic uncertainty amid an impending recession.
Notably, gold achieved a peak of $2,532, and a favorable outlook persists even with the recent steadiness within the range of $2,450 to $2,530. Currently, the historical inflation safeguard is trading at $2,518, reflecting year-to-date growth of 22%.
Taking into account the latest price movements, gold has faced challenges in gaining momentum towards the $2,600 frontier, prompting speculation about a possible recalibration.
Is gold on the brink of a recalibration?
In this context, on September 5, Bloomberg Intelligence Senior Commodity Strategist Mike McGlone, in an X post, addressed various factors impacting gold’s potential recalibration.
McGlone highlighted the significance of monitoring the commodity’s short-term performance as its price varies in relation to major asset categories and economic indicators. He observed that gold is signaling hints of a likely mean reversion in its favor against the stock market, which has been energized by the success of artificial intelligence (AI). This circumstance could suggest concerns about the broader economy.
Additionally, McGlone contrasted the S&P 500 Index with U.S. nominal gross domestic product (GDP) and gold values, noting that the precious metal is presently at a historically low ratio compared to equities. Nevertheless, prevailing conditions indicate a potential trend transition.
The mean reversion theory suggests that market prices typically revert to their long-term averages after significant divergences, indicating that gold’s relative underperformance against equities might not be lasting. Should the stock market stabilize, investors may turn to gold for security, propelling its price upward.
Gold’s potential revival
He further emphasized that gold could witness a resurgence due to factors like ‘hidden volatility in the U.S. stock market’ and ‘elevated interest rates.’ These elements are vital, especially considering China’s position as a major consumer of gold amid deflationary pressures. If interest rates stabilize, gold might see a bullish breakout.
Furthermore, historical trends indicate a favorable long-term forecast for gold. Previous periods marked by monetary easing and liquidity boosts have typically led to increases in gold prices as central banks withdraw their support.
According to McGlone, as global geopolitical tensions escalate, gold’s role as a safe-haven asset may become more prominent, consistent with past trends of individuals seeking sanctuary in gold during tumultuous periods.
In summary, worries about a U.S. recession have surged in recent months, igniting investor interest in gold. Although the metal has cooled off recently, anticipation looms around the next potential adjustment in the Federal Reserve’s interest rates, which could revive its upward trajectory, bolstered by the fundamentals highlighted by McGlone.
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