There’s been plenty made this year about gold’s incredible rise to new record levels. A point that gold bugs love to point out.

As we sit here gold is trading at around US$2700oz having reached an all-time high that was just shy of US$2900oz. 

Thus the question has to be asked: where is the limit? And where too from here for the inert metal?

The movements over the last five years clearly suggest there is a structural change going on inside the very definition of what gold is. 

• 14.7% in the last six months. 
• 29.4% year to date.
• 34.2% in the last 12 months
• A staggering 82.3% in the last five years. 

That is telling a story that is different to the original fundamentals we were taught at university and then as fundamental traders.

Let’s look at that theory: gold usually trades closely in line with interest rates, particularly US treasuries. 

As an asset that doesn’t offer any yield it typically becomes less attractive to investors when interest rates are higher and usually more desirable when they fall. That still technically holds true, However what has changed is how much central banks are interfering with that fundamental.

Since 2022 when Russia invaded Ukraine one of the main reactions from the West was to freeze Russian central bank assets. Since that point the Russian central bank particularly has been buying gold as a form of asset store/reserve. It has also allowed it to avoid the full force of financial sanctions placed on it. 

But they’re not the only ones doing this; emerging market central banks have also stepped up their purchasing of gold since this sanction was put in place and are rapidly increasing their own central bank reserves. 

Then we look at developed markets central banks. The likes of the US, France, Germany and Italy have gold holdings that make up to 70% of their reserves are net buyers in the current market. That suggests something else is afoot.

Are they concerned about debt sustainability? Considering the US has $35 trillion of borrowings which is approximately 124% of GDP, do central banks around the world see risk?

Considering that many central banks have the bulk of their reserves in US treasuries coupled with the upcoming unconventional administration in the Oval Office this certainly puts gold’s safe haven status in another light.

There are truly unknowns with the upcoming trump administration and gold is clear hedging play against potential geopolitical shocks, trade tensions, tariffs, a slowing global economy, deft defaults and even the Federal Reserve subordination risk

So what is the outlook for Gold over the coming years and just how high could it go? Consensus over the next four years is quite divided: by the end of 2024 the consensus is for gold to be at US$2650oz and then easing through 2025 to 2027 to $2475oz. 

However there are some that are calling for gold to reach the record reached in September this year before surging towards $2900oz the end of 2025 and holding at this level through most of 2026. And right now who could blame this prediction – Gold bugs believe the confidence in gold’s enduring appeal amid a volatile macroeconomic and geopolitical landscape is a bullish bet.

Expectations for sustained diversification and safe-haven flows do appear structural and with central banks and investors seeking to mitigate risks in an environment characterised by persistent uncertainty, geopolitical tensions, and economic volatility. 

And it’s more than just the demand side that’s leading the charge. The supply side of the equation further supports our bullish outlook.

Gold mine production is inherently slow to respond to rising prices due to long lead times for exploration, development, and production ramp-up. Furthermore, major producers avoid aggressive hedging strategies, as shareholders typically prefer full exposure to gold’s upside potential.

The supportive fundamental backdrop reinforces that demand from both the official sector and consumers will remain robust, while supply-side constraints provide a natural tailwind for price appreciation.

What we as traders need to be aware of is many investors actually believe they’ve missed the rally and are wary of buying gold at all-time highs. 

There are some that believe gold is due pull back even a correction as they struggle to make sense of gold in the new world. The divergence away from yields coupled with unknowns out of China and the US has made them nervous to buy this rally.

But we would argue the pullback has probably already happened. If we look at the gold chart, since the US presidential election gold has moved through quite a reasonable downside shift. Dropping from its record all time high to a low $2530oz.

That decline has clearly been cauterised and the momentum now is clearly to the upside. We can see from the chart that spot prices are now testing the September-October consolidation period. Any clean break above these levels would see it going back to testing the head and shoulders pattern at the end of October-November. 

This will be the keys to gold for the rest of 2024. But whatever happens in the short term the long-term trend suggests there is more for the gold bugs to delight in.

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