Gold Spot Price Approaching $2,800, Reaching Historical High of $2,782.2 per Ounce Before Deadline, with a Year-to-Date Increase of Over 37%, Higher than S&P 500 Index’s 22% Increase. The Main Factors Driving the Increase in Gold Prices Include the US Presidential Election, War Hedging, Interest Rate Expectations, and Central Banks Increasing Gold Reserves.
Multiple Factors Supporting Gold Prices
Analysts Worry About Overheated Market Sentiment
Bitcoin Less Than $200 Away from Previous High
The spot price of gold continues to reach new highs, nearing the $2,800 mark before the deadline. According to TradingView data, the spot price of gold has climbed to a historical high of $2,782.2 per ounce, currently trading at $2,778.2 per ounce, with a 1.18% increase from yesterday and a year-to-date increase of 37.4%, higher than the S&P 500 Index’s 22% increase, making it one of the most outstanding assets this year.
The recent rise in gold prices is driven by various factors, including fiscal instability, increased hedging demand, central banks increasing gold reserves, Chinese investors turning to gold due to record-low savings rates and concerns about the real estate market, as well as the increased uncertainty surrounding the recent US presidential election. Ole Hansen, Head of Commodity Strategy at Saxo Bank, pointed out that these are the main driving factors. Additionally, Forex market analyst Fawad Razaqzada also stated that the uncertainty surrounding the US election has supported gold prices in the short term, as gold remains a classic hedge against market volatility.
War Hedging
Since October last year, conflicts have arisen between Israel and neighboring organizations or countries such as Hamas, Iraq, and Lebanon in the Middle East, and the ongoing Russo-Ukrainian war has not yet ended. Recently, North Korea sent troops to support Russia, escalating the Russo-Ukrainian war and making it internationalized. South Korea has stated that it will consider providing weapons to Ukraine if North Korea gets involved in the Russo-Ukrainian war. Against the backdrop of regional conflicts escalating internationally, the hedging value of gold is gradually increasing.
Interest Rate Expectations
Market expectations of a Fed rate cut have driven the rise in gold prices. Currently, according to the CME Fedwatch tool, the market predicts a 99% probability of a rate cut of one basis point in November, with a 1% probability of no rate cut. As gold itself does not generate interest, a rate cut would lower the opportunity cost of holding gold, thus increasing its attractiveness to investors. Despite the recent strength of the US dollar and rising long-term bond yields, which theoretically should weaken the attractiveness of non-yielding assets like gold, gold prices continue to rise. Jeff Jacobson, an analyst at 22V Research, stated that this indicates a strong and powerful bullish sentiment towards gold in the market.
Central Banks Increasing Gold Reserves
Central banks worldwide have significantly increased their gold holdings, especially emerging markets that want to reduce their dependence on the US dollar due to geopolitical tensions. This strong demand has provided important support for gold prices this year. However, some analysts advise investors to remain cautious and avoid increasing investment risks due to excessively bullish market sentiment. Jay Kaeppel, Senior Research Analyst at SentimenTrader, stated that although gold currently shows multiple favorable trend signals, gold prices could experience a “parabolic rise” similar to the late 1970s to early 1980s. In other words, gold may rise to unsustainable high levels and eventually form a bubble that bursts. Kaeppel warned, “Don’t be misled by the media hype surrounding gold.” Rick Bensignor of Bensignor Investment Strategies shares a similar view. He recently sold about half of his gold position at a price of $2,700 per ounce and reminded investors not to be misled by the media hype surrounding gold.
It is worth mentioning that Bitcoin, recently hailed as “digital gold,” has also performed well. After breaking the $70,000 mark yesterday, it continues to surge towards its previous high. In the early morning today, Bitcoin reached a peak of $73,620, only $157 away from its historical high of $73,777, almost synchronized with the upward trend of gold. As of the deadline, it is trading at $72,279, with a 1.8% increase in the past 24 hours and a nearly 8% increase in the past week.