Gold gains, but lags 5 other FXTM commodities :: InvestMacro

By ForexTime

• Gold edges up 0.2% today; still stuck in sideways range since April
• Bullion’s year-to-date gains now at 13.1%
• Bloomberg model: Gold may be range-bound for another month
• Fed rate cuts, PBOC buying needed to trigger next leg up
• 5 other FXTM commodities outperformed gold so far in 2024

 

Gold’s luster has been waning of late.

To be certain, the precious metal added to its 13% gains from 2023 with a further 13% so far in 2024.

Despite posting fresh record highs in recent months, gold’s gains have stalled since mid-April.

Notice how spot gold attempted to break above the $2430 line back in mid-April and mid-May.

Those intraday spikes however could not be sustained.

Although edging higher at the time of writing, gold has been trading back below its 50-day simple moving average (SMA) for the first time since February 2024.

 

Why has gold’s rally stalled?

1) Lowered bets for Fed rate cuts this year

Back in March 2024, markets were according up to a 92% chance that the Fed would lower its benchmark rates by a total of 75 basis points (three rate cuts of 25-basis points each) by year-end.

Recall that gold offers no interest (zero yield) to holders of this asset. Hence, lower interest rates tend to reduce the opportunity cost of holding gold.

In other words, lower rates boost the appeal of zero-yielding gold.

But with markets now predicting just two rate cuts (25-bps each) by the Fed this year, that has curbed gold’s upside, though providing support for the precious metal in the interim.

 

2) PBOC halted gold purchases

A big driver of gold’s surge has been the persistent buying from major central banks, especially the People’s Bank of China.

The PBoC bought about 10 million troy ounces worth of the precious metal since November 2022, as it sought to pad up and diversify its foreign reserves.

However, on 7th June 2024, it was revealed that the PBoC halted its 18-month buying spree in May 2024.

That news triggered a 3.5% drop in spot gold and dragged prices well below the 50-day SMA.

 

 

What could make gold’s rally resume?

As mentioned earlier, markets need greater certainty that the Fed can indeed press ahead with its intended rate cuts.

Given its stated “data dependent” stance, the incoming US jobs/inflation data may prompt gold bulls to charge on once again.

The PBoC and other central banks may yet be compelled to return to the market, either due to a further need to increase their foreign reserves, or if lower gold prices prove attractive enough.

A resumption of their buying spree should give fresh impetus for gold to move higher once more.

 

 

How is gold expected to perform over the days/weeks ahead?

According to Bloomberg’s model:

• 74% chance of $2286 – $2382 over the next one-week period
• 73% chance of $2246 – $2439 over the next one month.

Contrasting the above forecasted ranges to current prices …

Gold appears to retain a downside bias, with less chance of posting a new record high by mid-July.

Such an outlook would be keeping with the downtrend (lower highs and lower lows) since its current record high of $2450.03 on May 20th.

The Fed is also unlikely to give more concrete signals about its policy intentions before these central bankers are shown another couple months’ worth of jobs/inflation data.

The next FOMC policy meeting isn’t slated until July 31st.

Hence, gold bulls might have to bide their time in the interim, and perhaps endure bouts of profit-taking that results in dips for spot gold prices.

 

 

How has the rest of the FXTM commodities complex performed?

FXTM recently launched 10 new commodities, adding to the ranks that already feature Gold, Silver, Brent (oil), Crude (US crude oil), and NatGas (Natural Gas).

While gold’s 13% in year-to-date gains is certainly notable, it still lags behind the year-to-date gains seen in Silver, as well as 5 of those new commodities:

1. Cocoa: +136.8%
2. Robusta: +34.3%
3. Silver: +24%
4. Arabica: +20%
5. Copper: +16.8%

 

 

Certainly it has been a good year so far for commodity bulls, thanks to lacking supply and resilient demand across the global economy.

• However, if the global economic outlook deteriorates, due to demand-destroying elevated interest rates, that could prompt these commodities to unwind these stellar year-to-date gains.
• To the upside, should major central banks press ahead with their plans to lower interest rates, which is supportive of demand for these commodities, that could boost these commodity prices even higher.

Either way, traders who are primed and ready stand to reap sizeable trading opportunities along the way, either up or down.

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Article by ForexTime

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