The price of gold in August (XAU/USD) rose, hitting a new all-time high for the yellow metal. Three-month implied volatilities moved from levels of around 14% to highs of just over 18%. The rise in implied volatilities followed the collapse of carry trade positioning and gold briefly underperformed, falling to levels below $2,400 per ounce. During periods of risk reduction, Investors often reduce their gold holdings to have more margin for a positioning on the stock market.
Gold, the six factors that will continue to push it
This is revealed by the analysis of Union Bancaire Privée (UBP) edited by Peter Kinsella, Global Head of Forex Strategy explaining that looking at September, we believe there are several risk events that will lead to even higher prices for the yellow metal:
- Meeting of the Bank of Canada September 4: The BoC is expected to cut rates by at least 25 basis points at its next meeting and we believe there is a risk that the monetary policy council will opt for a broader rate cut of 50 basis points.
- Presidential Debate on September 10: The US presidential election debate between former President Trump and current Vice President Harris will be noteworthy for any insights into fiscal policy and debt sustainability. Gold could rally on the perception that the fiscal deficit remains a largely ignored issue.
- ECB meeting September 12: The ECB is likely to cut rates by 25 basis points, justified by recent growth and inflation data in the Eurozone. We do not expect the ECB to cut rates larger than expected and, as always, will try to give the impression of maintaining a stable position.
relatively hawkish. - FOMC meeting Fed’s Sept. 18 rate cut: The Fed is likely to move forward with a rate cut of at least 25 basis points, and there is a possibility that it could go as low as 50 basis points, although much will depend on how inflation data plays out in the interim.
- Bank of England meeting September 19: The BoE is expected to remain on hold, although we note that OIS (Overnight indexed swaps) show that markets have priced in a rate cut with a 30% probability, suggesting that a rate cut is not entirely out of the question.
- Meeting of the Swiss National Bank on 26 September: The SNB is expected to cut rates by 25 basis points at the meeting and we note that markets have moved towards pricing in further rate cuts over the next year.
UBP analysis
If we look at the current situation, “we see that we are witnessing a coinciding easing cycle by many of the major central banks. This development is highly constructive for gold, because it reduces the relative cost of owning gold for investors. This implicitly means that we are moving towards a scenario where financial flows will play a greater role in determining the price with respect to the underlying question of physical gold”.
We observe that gold is trading at a large premium over the TIPS yields US 10-year yields, but since 2022 the relationship between the two variables is less significant. They appears to be trading at solid levels, despite nominal yields rising to materially higher levels. The prospect of falling interest rates and, consequently, TIPS yields is beneficial for gold because it implies a reduction in the opportunity cost of its detention.
We note that since mid-July the US Dollar Index is trading at weaker levels. The US dollar still trades at rather elevated levels relative to rate spreads, which suggests that the rates market has priced in the new outlook to a greater extent than the currency market. As a result, the USD may weaken further from current levels. our models show that a 1% depreciation of the US Dollar Index is consistent with an increase of about $8 per ounce in the price of gold. Given the significant overvaluation of the
dollar, this indicates that gold can actually rise further if the greenback weakens ahead of a bearish cycle.Fed rates.
Downside risks
The recent rapprochement in the polls for the US presidential election gives us pause for thought, “as the markets they believed that a presidency Trump would have been advantageous For They through increased inflation expectations – due to the effects of tariffs, etc. If Harris continues to lead in the swing states, this could weigh on on gold only to a modest extent, but for now we think that the underlying monetary policy changes will represent the dominant factor”, the expert underlines explaining that “The main downside risk for gold “would be if the Fed and other major central banks postponed their rate-cutting cycles. This appears unlikely given the broader decline in inflation prospects. Overall, we remain structurally bullish for the coming months and years and there are now clear upside risks to the our forecasts, which we could revise upwards depending on the extent of central bank rate cuts in September“.
