Analysts at ING believe that the gold price could continue to rise, as it has outperformed other assets such as stocks. The gold price has risen over 17%, while the S&P 500 is up 12% and Dow Jones 4%.
Analysts said in a note that they expected gold to do well this year. Their year-end goal is $2,450.
Source: TradingView
US recession and Federal Reserve action
Gold prices are likely to rise because the US economy shows signs of a possible recession.
These red alerts have been sent by leading indicators for quite some time. The manufacturing PMI has been below 50 for some time, while consumer confidence has declined in recent months.
Further data indicates that the retail market has slowed down, while the housing sector is also easing. The unemployment rate, which has been steadily rising over the last few months to 4,3%, is the most important.
In the past, recessions have occurred when the labor markets are softening. As I noted on Monday, this so-called Sahm Rule has slowly increased from 0.43%. This is because the Sahm rule rose from 0.43% to 0.53% earlier this year.
Sahm Rule is a number which has proven to be a reliable predictor of recessions. Most often, recessions occur a few weeks after the level of 0.50% is reached.
The yield curve is also a red flag. Since July 1, 2022, the curve (the difference between the 10-year- and 2-year-curve) has been inverted. This is the longest period of time the yields have been inverted.
Recently, the yield on the 2-year bond has been lower than that of the 10-year. Analysts caution that this could be an indication of a possible recession.
Federal Reserve rate cuts
These factors may trigger the Federal Reserve into action by reducing interest rates. Analysts at ING predict that the Fed will deliver a jumbo-sized rate cut during its September meeting, and another 0.50% the following meeting.
By reducing rates, the gold market will join other central banks who have already begun to do so, such as the Bank of England, European Central Bank, Riksbank and Swiss National Bank.
Fed cuts can be bullish for the gold market, partly because they cause a weaker US Dollar. Recent data show that the US Dollar Index has fallen from more than $106 in early this year to only $102.
Geopolitical Factors
According to ING, geopolitical influences could also have an effect on gold. While the Middle East becomes more volatile, the war in Ukraine continues. Neither Donald Trump nor Kamala Harris will improve relations between the US with China.
The war in Ukraine was the biggest geopolitical driver for gold, as it prompted the US to impose sanctions against the Russian central banks.
Central banks began to accumulate gold as it was the best alternative currency to the US Dollar. In Russia, central banks hold over 2,330 tons of gold. China holds more than 2,300.
Gold is also held by other central banks, including those in Germany, France, Italy, Switzerland, Japan and India.
Some of the largest countries, such as China and Saudi Arabia, are reducing their US debt. This trend creates more demand when the gold supply isn’t growing as quickly. Analysts at ING stated:
The wars in Ukraine, the Middle East and China and the tensions suggest that the demand for safe havens will continue to drive gold prices up in the near to medium-term. Gold’s momentum will continue to increase through the end of this year, thanks to the US presidential election and the long-awaited rate cut by the US Fed.
Soaring global debt
Another major factor driving the gold price up is the rising US and global debt. According to the latest data, US debt is now over $35.1 trillion. This is equal to $268.258 for each taxpayer.
Other countries also have a substantial amount of debt. China has a debt of over $14.5 trillion. Japan, Germany and the UK each have a debt of over $13.5 trillion.
The situation is likely to worsen in the near future, as global debt led by the US continues to increase. Many people think that gold will be a good investment when the economy collapses.
Gold has historically dropped when other assets have declined. It fell by almost 4% on Monday as global assets declined due to the unwinding the Japanese carry trade.
The post Gold price rally not over yet: ING Bank appeared initially on ICD
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