Analysts Predict Further Gains for Gold

Against a backdrop of rising bond yields, gold has climbed to fresh all-time highs in recent sessions as investors seek safe-haven assets ahead of political events that present potential volatility. Can the upside continue?

Geopolitical and Economic Challenges

Gold prices may rise when US interest rates decline, which has been the theme over the summer and early autumn. However, as the US elections approach, both gold and yields increased, along with safe-haven silver. However, the rise of havens is not isolated to the US. Geopolitics remain at the fore due to circulating reports that Israel may launch counter-strikes against Iran. Lacklustre growth in China and Europe has also led to further interest rate cuts in the world's third and largest economies, respectively.

The Fed naturally impacts gold more than other central banks because gold is priced in dollars. While the 2-10 year Treasury yield spread de-inverted, which precedes recessions by weeks if history is a guide, the broader curve remains inverted. This implies that investors expect the Fed to maintain relatively high rates over the next twelve months. The "belly" of the curve has actually increased as investors boost bets that the US will avoid recession and the Fed may not need to reduce rates at all.​

Another Record Ahead of the Election?

Analysts at the London Bullion Market Association (LBMA) recently forecast that the price of gold could extend to $2,941 in the coming year due to market uncertainty. Interest rates are expected to move in different directions depending on who wins the upcoming US presidential election. For reference, a potential Trump presidency may implement tariffs that could boost inflation, suggesting higher interest rate levels. On the other hand, a potential Harris administration would keep the current situation going, with the Fed expected to cut rates at an appropriate pace.

However, it is not just the election outcome that raises uncertainty. The narrowing of polling results means there is a possibility of a contested election result that could heighten internal tensions and political conflict in the US. Additionally, the US debt ceiling at the end of the year is approaching as Congress still needs to pass a full annual budget as different political parties control the Senate and House of Representatives.

All of these factors appear to be reflected by the strong gold demand from institutional investors. Last week saw the largest amount of money invested in gold for this year so far, as American investors showed the greatest interest in gold exchange-traded funds (ETFs). This suggests that uncertainty specific to the US situation, including the upcoming election in two weeks, is driving gold's potential for another record high.​

Gold's C&H Matches LBMA Target

Gold prices have increased significantly after completing a cup-and-handle pattern at $1610 per ounce, surging towards a projected target of $2800 based on the previously measured move between $1920 and $1050. Despite rising in an impulsive fashion since a brief dip between $2280 and $2450 in the spring, prices could soon start to pull back on profit-taking, with the first major support sitting at $2610. However, using the handle top of $2080 per ounce as the breakout point, the measured move method projects a price of $2940, matching the target set by the leading market association.​

Source: SpreadEx / Spot, GOLD

Key Takeaways​

Gold prices have increased significantly due to safe-haven demand and geopolitical and economic uncertainties, with analysts predicting they could reach $2,941. Rising bond yields, an uncertain election outcome in the US, geopolitical tensions in the Middle East, and lacklustre growth in China and Europe have all driven gold higher. The metal may continue to increase depending on the election result and debt ceiling negotiations, though a pullback on profit-taking is possible.