Gold prices rose on Thursday, hitting a level near $2,400 an ounce in the spot market. This rise was supported by rising tensions in the Middle East and traders’ optimism about the possibility of a rate cut in the United States. Investors are awaiting the release of new economic data for clues on the direction of the Federal Reserve’s policy.
Market outlook and fundamental support: The chief market analyst for the Asia-Pacific region at OANDA indicated that fundamental factors support gold in the long term. These factors include geopolitical tensions in the Middle East and the continued decline in US Treasury yields, which makes gold an attractive option as a safe haven.
Movements in financial markets: The yield on the US 10-year Treasury note fell, increasing the appeal of gold as a non-yielding investment instrument. In addition, the US dollar witnessed a decline, which contributed to supporting gold prices. Major brokerage firms such as J. JP Morgan, Citigroup, and Wells Fargo expect the Federal Reserve to cut interest rates by 50 basis points in September, following a weak US employment report in July. Lower interest rates reduce the cost of holding gold, which supports current prices.
Anticipating new economic data: The market is currently focused on the US initial jobless claims data, which will be released at 15:30 Riyadh time, and investors are also awaiting comments from Richmond Federal Reserve President Tom Barkin later today. Bart Melek, head of commodity strategies at TD Securities, said in a note that markets are waiting for the jobless claims data to test the hypothesis of a slowing labor market, which could affect future monetary policy decisions.
Federal rate cut expectations decline, monetary easing expectations increase
The “US Available Rate Watch” tool showed a significant decline in expectations for a 25 basis point rate cut by the Federal Reserve at the September meeting. The expectations decreased from 88.1% a week ago to 26.5% currently. In contrast, expectations for monetary easing rose by a significant 50 basis points, increasing from 11.8% to 73.5%. In a related context, Peter Fung, head of trading at Wing Fung Precious Metals, said: “In the near term, I think the market will stabilize around the $2,350 level, and may move towards $2,500 later this year.”
Gold at settlement yesterday: Gold futures prices stabilized during trading on Wednesday, amid pressure from the rising dollar and US bond yields, and despite expectations of a Federal Reserve interest rate cut in September. At settlement, gold futures for December delivery settled at $2,432.40 per ounce, almost unchanged from the day before yesterday, after touching $2,447.30.
Traders have changed their expectations for interest rate cuts, following the weak jobs report, last week, with cuts expected by about 105 basis points, by the end of the year. However, markets are pricing in a 65 percent chance of the Fed cutting rates by 50 basis points in September, according to the FedWatch tool, compared with 85 percent a day earlier.
Gold will be supported by “ongoing tensions in the Middle East and ongoing global recession fears,” the market strategist said, as markets await further economic data to clarify U.S. conditions. Elsewhere, China’s exports grew at their slowest pace in three months in July, missing expectations and adding to concerns about the outlook for its vast manufacturing sector.
Central bank gold buying to slow in Q2 as positive activity persists
After a strong start to 2024, central bank gold purchases slowed markedly in the second quarter, falling 39% quarter-on-quarter to 183 tonnes. Despite the decline, the level remains 3% above the five-year quarterly average of 179 tonnes, according to the World Gold Council.
Top Gold Buyers in Q2: The National Bank of Poland emerged as the largest gold buyer in Q2, buying 19 tonnes, its first purchase since Q4 2023. Its total gold holdings rose to 377 tonnes, accounting for 13% of its total reserves. In India, the Reserve Bank of India continued to build its gold reserves, adding 19 tonnes in the second quarter of 2024.
The bank has been buying throughout the year, bringing its total net purchases since the beginning of the year to 37 tonnes, more than its annual net purchases in 2022 and 2023, which amounted to 33 tonnes. In April, RBI Governor Shaktikanta Das said that “we are building gold reserves”, with India’s reserves now at 841 tonnes, accounting for 10% of the total. Activity in Turkey: In Turkey, the central bank added 15 tonnes to its official gold reserves in the second quarter of this year, bringing its total net purchases since the beginning of the year to 45 tonnes
the largest among central banks. This change comes after a period of heavy selling in the first half of last year, which amounted to 102 tonnes to ease pressures in the domestic market. Turkey’s total official gold reserves currently stand at 585 tons, accounting for 34% of total reserves.
Slowdown in gold purchases by the People’s Bank of China and rise in gold reserves by some central banks
The People’s Bank of China reported a significant slowdown in gold purchases in the second quarter of 2024, recording a net purchase of 2 tons in April, and no changes were recorded in its gold reserves in May and June. The People’s Bank of China had previously announced the purchase of 316 tons of gold between November 2022 and April 2024, bringing its total reserves to 2,264 tons. With gold prices rising this year, gold now accounts for 5% of the bank’s total reserves, the highest since 1996. Despite some net sales during the quarter, they were limited compared to previous levels of purchases.
Other market movements: According to the World Gold Council report, the Monetary Authority of Singapore was the only central bank in developed markets to announce an increase in gold reserves in the second quarter, adding 4 tons. In contrast, only two central banks saw their gold reserves decline, the Central Bank of the Philippines and the National Bank of Kazakhstan, each falling by 12 tonnes.
Unreported demand and the importance of domestic storage: The World Gold Council report indicated that unreported demand was significant during the second quarter, accounting for about 67% of total demand according to the council’s official estimates. The report also stated that the Reserve Bank of India and the Central Bank of Nigeria repatriated gold from the United Kingdom and the United States, respectively, reflecting a shift in the location of gold storage rather than its ownership, highlighting the importance of domestic gold storage for some central banks.
The World Gold Council continues to stick to its expectations of increased central bank purchases throughout 2024, indicating that the market is on track to achieve another large annual total.
