Key points
- Precious metals undergoing an extended period of consolidation, giving traders and investors time to adapt to higher levels.
- China, a major driver of gold buying since 2022, has temporarily stepped aside, thereby removing an otherwise constant source of demand.
- Hedge funds getting onboard early and at lower levels helps explain why gold has suffered a smaller correction than silver.
- We maintain our “Year of the metal” theme with clarity about the timing and depth of incoming US rate cuts needed for additional support.
The precious metals sector is undergoing an extended period of consolidation, and following the strong run up earlier this year, this phase gives traders and investors time to catch their breath while adapting to new and higher levels. Following two unsuccessful attempts to establish support above USD 2400, gold has, since early April, seen most of its daily closes being within a USD 2280 to USD 2380 range. The biggest setback during this time was when data showed the People’s Bank of China, after 18 months of non-stop buying, paused their purchases in May.
China, a major driver of the gold rally since 2022, is in our opinion nowhere near done buying gold, and we believe the pause is mostly driven by the bank balking at the prospect of paying record prices. Also, the recent attention paid to Chinese private buying, another significant driver of demand for physical gold, has likely thrust them into a spotlight they normally avoid. Overall, gold is still consolidating, and the news will likely prolong that phase, but overall, the long-term bullish outlook has not changed.
We maintain our positive outlook for investment metals with the below drivers still the focus:
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Continued central bank demand amid geopolitical uncertainty and de-dollarisation, and not least gold’s ability to offer a level of security and stability that other assets may not provide. China’s buying pause is seen as temporary
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Rising debt-to-GDP ratios among major economies, not least in the US, raising some concerns about the quality of debt. In other words, rising Treasury yields are not necessarily negative for gold as they raise the focus on overall debt levels and the sustainability of those.
Gold has, throughout the latest and once again shallow consolidation phase, managed to hold above technical levels, currently around USD 2280, which otherwise could have triggered long liquidation from managed money accounts, currently holding an elevated speculative long in the futures market, mostly entered at even lower levels below USD 2200
