The price of gold is continuing to give the proverbial middle finger to the current slump in the markets, as it managed to shove its way through the muck and mess to a brand new record high on Wednesday in what could amount to its seventh straight day of big gains. Gold has been hitting the gym and lifting heavy, apparently. I kid, I kid. Hey, since when do articles about investing have to be drier than the Sahara Desert? We could all use a little more seasoning in our lives, don’t you?
According to MSN — yes, it’s still around, it surprised me too — continuous-contract gold futures were up by 1.3 percent Wednesday and ended up being traded as high as $2,312.50 per troy ounce, which is an all-time high. That’s a nice chunk of change. So far this year, and 2024 is still pretty young, the precious metal has risen by 11.5 percent.
Over the past five days, gold has risen 4.3%, bucking declines in stock and bond markets, where the Dow Jones Industrial Average and S&P 500 have slipped back from their own peaks this week.
“Gold continues to defy gravity,” Achilleas Georgolopoulos, an analyst at broker XM, wrote in a note. “It is showing unprecedented strength and manages to rally under every market scenario.”
Indeed, gold has notched gains amid what could look like contradictory catalysts.
Prices marched higher in recent weeks amid expectations that the Federal Reserve will soon cut interest rates, which would put downward pressure on bond yields and the dollar, a trend typically benefiting gold. But the precious metal continued rising this week as inflationary signs in economic data put rate-cut bets under pressure—a factor that knocked stocks—as traders seemingly sought it out as an inflation hedge.
“The lower dollar could have been a factor in yesterday’s move, but gold has rallied even in dollar-positive days,” Georgolopoulos stated. “This is another indication that other forces are in play such as strong buying appetite from certain sovereigns trying to diversify their dollar holdings.”
However, there’s more going on behind the rise of gold than all of this talk of pillars of rates, inflation, and, of course, the dollar. Much more, in fact.
“Support has come from a few segments where demand has held up particularly well. Indeed, central banks themselves keep adding gold to portfolios,” analysts at Bank of America went on to write in a note. “This has perhaps been most visible in China, where the PBOC [People’s Bank of China] has been increasing its exposure. That buying has also attracted purchases from China’s retail market participants.”
A huge part of the story behind gold’s surge is how much of it China has been snapping up lately. The central bank of the communist nation has been a consistent buyer of the yellow metal, but even that is not the biggest factor at play here. The reason gold is doing so phenomenally right now has to do with buying from retail investors, at least according to analysts who work for the research firm Gavekal Dragonomics in a recently penned note.
They added that as China’s property sector has collapsed and its stock market has languished, “a larger portion of China’s household savings is flowing into gold as an alternative.”
While gold continues to benefit from fundamental support—and the momentum from this latest rally has possibly drawn in new investors—such a rapid pace of gains for a typically stalwart and stodgy commodity risks looking overdone.
“Warning signs are flashing,” Kathleen Brooks, an analyst who works at broker XTB, stated in a note. “At this stage it is hard to see the gold price coming under severe downward pressure, but we would point out that open interest on gold contracts appears to have peaked and the gold price is now 15% above its 200-day simple moving average. This suggests that it is at extreme levels and could be due a pullback.”
Precious metals are usually good investments and if you have been investing in gold for awhile, well, you’re no doubt very pleased with the results you’re seeing right now. Keep an eye on the market to see if the streak continues.