Weekly fundamental forecast for gold
Gold has soared to a new record high of over $2,700 per ounce, marking a 30% increase since the start of the year. The precious metal continues to be one of the top performers in the financial markets in 2024. The asset is driven by market uncertainty, which is likely to intensify as the US presidential election draws near. Is this significant rally in the XAUUSD pair surprising?
Gold, along with Bitcoin, bank stocks, and small-capitalization companies, is a key asset in the Trump trade. The growth of the latter two is fuelled by Donald Trump’s promises of business deregulation, while the former two are supported by uncertainty. The Republican intends to reorganize the entire international trade system through tariffs, frightening investors. Consequently, they hastily purchase gold, diminishing the likelihood of a pullback.
A rising US dollar and increasing US Treasury yields are generally considered unfavorable for the XAUUSD pair. This is exactly what occurred in October. After showing its weakest performance in Q3 since late 2023, the US dollar index appears to have recovered, supported by the Trump trade. Following a series of positive reports on the state of the US economy, investors are reevaluating the Fed’s monetary expansion scale, leading to an increase in bond market rates.
Bond yields and Economic Surprise Index performance
Source: Bloomberg.
Gold’s historically strong correlation with the US dollar and Treasury yields was relevant in the past. However, the global landscape has shifted significantly in recent years. Central banks in the traditional East are demonstrating a notable lack of response to decades-old correlations, buying more gold. According to the WGC, the amount of gold purchases reached 483 tonnes in the first half of the year.