Key Takeaways:
COMEX gold futures opened at $4,468.80 per troy ounce Thursday, up 4% in a week, as Fed rate hike bets faded.
"Gold's recent rebound appears to be driven more by changing expectations around interest rates and the economy than by fear alone," Joe Cavatoni, senior market strategist at the World Gold Council, said.
Spot gold rose nearly 1 percent to $4,406.34 per ounce Wednesday, nearing a 10-week high after breaching $4,200 last week. December futures settled at $4,466.70. The market-implied probability of a September rate hike fell more than 20 percentage points in the past week, according to Nick Cawley, contributing analyst at Solomon Global, after July CPI printed at 0.1 percent monthly and 3.4 percent annual, with core at 2.5 percent.
Gold remains up more than $1,000 over the past year after falling as much as 18 percent from its January record above $5,300 per ounce. The Fed's Jackson Hole symposium later this month, along with new Fed Chair Kevin Warsh's pared-back communication, will determine whether the rally extends.
The Fed has held its policy rate at 3.50 to 3.75 percent all year, and September was genuinely live for a hike until last Friday's soft non-farm payrolls report, said Patrick Kennedy, founder and managing partner at AllSource Investment Management. "What changed is that the hike tail risk came out of the market," Kennedy said. "It's a different setup than a cutting cycle, and it matters when you're asking whether this has legs."
Central banks continue to accumulate gold. The People's Bank of China added 19.9 tons in July, its largest monthly purchase since October 2023 and its 21st straight month of accumulation, Kennedy said. John Paulson, the billionaire hedge fund manager who has been a gold bull since 2009, recently told CNBC that gold is only in the early stages of a long-term rally, citing loss of faith in paper currency and runaway government spending.
Gold mining stocks had their hottest five-day run since 2008 last week, with the VanEck Gold Miners ETF (GDX) moving roughly three times gold's weekly gain, Kennedy said. Junior miners via GDXJ were "more violent still," he added. Newmont and AngloGold Ashanti trade on single-digit forward price-to-earnings ratios while paying substantial dividends, said Vince Stanzione, an independent trader and author of "The Millionaire Dropout."
ETF flows reached a six-week high, with GLD options activity increasing, according to Cavatoni. "The buying we're seeing out of Asia and Europe tends to be stickier" than U.S. flows, he said. For retail investors, GLDM offers the lowest expense ratio at 10 basis points versus 40 for GLD and 25 for IAU, said Shawn Young, chief analyst at MEXC Research.
Gold's year-over-year gain of 33 percent compares to a 95.6 percent rise as of Jan. 29, reflecting the sharp correction earlier this year. Silver also posted its best week since February, with the iShares Silver Trust (SLV) offering a more volatile route into precious metals.
This article is for informational purposes only and does not constitute investment advice.
