The World Gold Council reported on Thursday that growing stagflation risks, geopolitical tensions, and continuous ETF investments will likely keep gold prices high throughout the year.
“US stagflation and potential rate cuts, alongside policy risks, may drive prices as demand from emerging markets slows,” the council stated in its monthly report.
Gold experienced a strong rally, reaching $3,429/oz (+4%) by month’s end, and was up 31% for the year by the end of August, seeing gains across all major currencies despite a weaker US dollar. This positive trend has continued into early September.
The WGC’s Gold Return Attribution Model (GRAM) indicates that August’s price performance was mainly influenced by an early-month dip in the US dollar, ongoing geopolitical issues, and robust global gold ETF flows. Additionally, the likelihood of a September rate cut has impacted prices.
Gold ETF flows significantly supported prices, particularly late in the month, with $5.5 billion (53 tonnes) in inflows, led by North America ($4.1 billion) and Europe ($1.9 billion), while Asia and other regions experienced outflows. COMEX managed money net longs recorded more modest inflows of $2 billion (+16 tonnes), according to WGC data.
US real rates may soon play a larger role for gold as US investors take the lead from emerging markets, especially if rates decline, analysts suggest. Rates have been steady, reflecting concerns over stagflation.
“Our analysis of various US investor types shows that stagflation is most concerning to ETF investors, followed by retail bar and coin buyers. Fast money futures investors focus more on rate trajectory,” the WGC noted.
As central banks and Asian investors pull back slightly, as shown by our Gold Demand Trends data, a closer gold-rates relationship might re-emerge, making US investors more influential in short-term returns.
If rates start dropping across the curve, increased gold buying in the US could follow. “Yet, we haven’t seen this fully materialize. The curve is steepening as short-term rates dip on Fed cut hopes, but long-term rates remain high due to risk premia and inflation concerns,” the WGC explained.
Futures traders are more focused on rate trends. As the yield curve steepens with lower short-term rates and ongoing inflation fears, the interaction of macroeconomic indicators and investor behavior will guide gold’s future movements, the WGC stated.
“Geopolitical tensions and diverse reserve diversification by central banks and sovereign wealth funds have bolstered gold demand, while high long-term yields and decreasing appeal of traditional bonds have pushed investors towards tangible assets like gold and silver,” said Ole Hansen, Head of Commodity Strategy at Saxo Bank.
Fundamentals suggest further gains, driven by anticipated Fed rate cuts, a weaker US dollar, and strong investment demand. Gold is outperforming major equity indices, and central bank purchases are boosting its momentum, making the precious metal a key focus for global and UAE investors amid uncertainty. “For long-term investors, gold has proven its value in a diversified portfolio. It offers stability during risk events and serves as a reliable long-term value store and portfolio diversifier. Even in the digital age, a touch of traditional gold offers balance and reassurance,” said Josh Gilbert, Market Analyst at eToro.
