Gold has outperformed equity markets in the first half of 2024, demonstrating its resilience against expectations. Spot gold prices on the Multi Commodity Exchange rose 14%, outperforming the benchmark Nifty50 index. Globally, the metal has risen nearly 13% during the period, hitting $2,380 per ounce. The rally has been sustained despite persistent high interest rates, confirming gold’s status as a safe haven asset.
As global economic growth slows, risk-averse investors are fleeing to gold. Continued central bank purchases and ongoing geopolitical uncertainty have also boosted gold prices. According to a July 9 World Gold Council report, traction for gold exchange-traded funds (ETFs) has improved significantly, with global gold ETFs recording inflows of $1.4 billion in June, marking the second consecutive month of positive inflows. Asian funds attracted a record $3 billion in the first half of the year, indicating robust investment demand driven by rising gold prices. In contrast, funds in North America and Europe have seen significant outflows. However, inflows seen in June and May have limited global gold ETF losses to $6.7 billion so far this year.
Gold prices both at home and abroad are hovering near record highs, raising the question: “Does the rally have any momentum left?”
Apart from geopolitical tensions, tensions between the US and China are expected to sustain demand for gold as a safe haven in the medium term. Moreover, interest rate cuts by the US Federal Reserve could be a major trigger for further price growth. When interest rates are falling, gold becomes a more attractive investment option as a non-interest-bearing asset.
It remains unclear when the Fed will cut rates, but optimism is growing that the sooner the better. Weak economic data last week has raised the odds that the Fed will ease monetary policy as early as September, according to ING. “Swaps traders now estimate a 75% chance of a rate cut within two months,” it said in a July 8 report. ING now expects three rate cuts this year, versus the two the market is currently pricing in.
Given this backdrop, investors should closely monitor Federal Reserve Chairman Jerome Powell’s congressional testimony and the June U.S. Retail Price Index, scheduled for release on July 11. The next Federal Open Market Committee (FOMC) meeting is scheduled for July 31. Additionally, movements in U.S. Treasury yields and the U.S. dollar will also impact gold prices.
Conversely, a significant drop in central bank gold purchases could dent gold’s outlook. Notably, China’s central bank did not increase its gold reserves for the second consecutive month in June. Also, a decline in investment demand from Asian investors could thwart gold’s continued rise.
