Gold Q3 outlook

Gold has shown robust gains since the start of the second quarter, hitting a new high of $2,450 per ounce in May. However, it has since retraced some of those gains and is currently stabilising around key support level of $2,300 per ounce. The question remains: Can gold rally again in the latter half of the year and aim for $2,500 per ounce?

Gold prices are currently influenced by a mix of conflicting factors, such as geopolitical tensions, rising demand from BRICS countries and US interest rate decisions. With the upcoming US presidential elections, there could be increased interest in gold as a safe haven.

Closely monitoring geopolitical and economic developments, along with the Fed decisions, will be essential in determining the future trajectory of gold prices in the third quarter.

Global uncertainty supports gold prices

The resilience of gold prices, despite recent declines, can be attributed to prevailing geopolitical tensions and associated risk aversion.

Ongoing conflicts like those between Russia and Ukraine, along with unrest in the Middle East, have boosted gold's appeal as a safe-haven investment, as it’s known for retaining its value during uncertain times. Hence, the persistence of these tensions is likely to support the resurgence in gold prices.

Potential boost from presidential elections

Gold often sees upward movement during presidential election years, especially in contentious races such as Trump versus Biden in 2020.

During the 2020 election cycle, the price of gold increased by 25%, while silver almost doubled. From late October 2020 to the election, gold climbed from $1,867 to $1,908 per ounce. This upward trend was driven by cautious anticipation of the election results and their impact on global markets, as investors sought the stability offered by gold.

With another electoral battle between Donald Trump and Joe Biden expected, this scenario could once again support global gold prices, at least until the election date.

BRICS countries increase global gold reserves

BRICS nations are steadily increasing their global gold reserves to reduce reliance on the US dollar. Particularly noteworthy are China and India, which significantly ramped up gold purchases in the first half of the year. This shift comes as China navigates economic uncertainties following downturns in real estate and stock markets.

China is actively addressing risks associated with these sectors. According to the China Gold Association, gold purchases in China rose by 6% year-on-year in the first quarter, reflecting investor interest amid troubled property market. With limited alternative investment options, funds are flowing into Chinese gold funds.

The People's Bank of China continued its upward trajectory in gold holdings for the seventeenth consecutive month during the first quarter, reducing US Treasury bond holdings from $1.1 trillion in 2021 to $775 billion in March.

Recent data from the World Gold Council indicates a 33-ton increase in net gold purchases by central banks in April, with the Central Bank of Turkey leading, adding 8 tons to reserves after eleven months of continuous buying. Central banks globally have purchased a net total of 38 tons of gold since the beginning of the year.

Anticipated shift in US interest rates

While presidential elections can impact gold prices noticeably, their influence may be limited. Currently, global attention is focused on the timing of the Federal Reserve's monetary policy change and the announcement of its first interest rate cut after years of tight policy.

Market expectations of Fed rate cuts in the first half of the year did not materialise. The initial cut may happen in September. The delay in interest rate reduction at the recent meeting somewhat subdued gold prices, preventing them from sustaining new record highs.

Therefore, it’s crucial to monitor the Fed's upcoming decisions and actions, alongside key economic indicators, particularly inflation data. Successful stabilisation of annual inflation below 3% could prompt the Fed to adopt a rate-cutting policy, potentially once again supporting global price increases.