Gold: Why Is It Rising, and Can It Keep Going?

Earlier this week, gold prices hit two new record highs in a situation when normally the price should be going down. But, these aren’t normal times, and demand for safe havens seems to be outpacing the regular market dynamics. With a lot of uncertainty in the near future, there is potential for gold to remain upbeat.

Analysts at the London Bullion Association are predicting that gold will rise to just shy of $3,000/oz within the next twelve months. They cite an overall global trend towards easing rates and geopolitical uncertainty driving prices in the medium term. The concurrent rise in silver prices suggests that safe haven flows are currently dominating the market.

Why It’s Odd

Normally, gold prices move in opposition to US yields, particularly the US 10-year bond yield, which is the benchmark. That’s because gold doesn’t pay interest, so it becomes more or less attractive as an investment compared to how much interest can be received from bonds. Over the last week, US yields have been rising as markets price a dwindling chance of large rate cuts by the Fed.

So, it’s noteworthy that gold keeps rising in those circumstances. But, it’s not all just in the US. Europe’s slow growth is seen pushing the ECB to ease, making gold more attractive to European investors. A similar situation in China, where the PBOC is expected to cut rates, would likely support investor inflow from Asia as well.

What Is the Main Driver?

While those trends might be observed in the longer term, over the last week, institutional investors have been piling into gold ETF. Most of those funds have come from the US, with American institutional investors buying up the equivalent of 13.2 tonnes, compared to just 5.8 tonnes in Asia and 4.6 tonnes in Europe.

Investors are looking with increasing concern over the outcome of the US election, with the average of polls not only within the margin of error, but within less than a percentage point. Depending on who wins, interest rates would likely go in significantly different directions. A potential Harris administration is seen staying the course, allowing the Fed to keep easing along its current path. A potential Trump administration is expected to slap on tariffs that would raise the inflation rate, and keep the Fed from easing as much.

It’s Not Just the Result

The election is in less than two weeks, so naturally inventors are looking to pre-position. But there’s more than that: The potential for a contested election. That is, where the margin of votes is so narrow that it is not immediately known who is the winner, and the result can come down to protracted legal disputes that could drag through the rest of the month. That was the case in 2000, for example. Given the fraught political environment, a contested election could elevate general tensions, with corresponding investor aversion and demand for safe havens like gold.

We should remember that the debt ceiling is expected to snap back in place at the end of the month, with a divided Congress still unable to agree on just a budget for the current fiscal year. Add a disputed election into that process, a new debt crisis could loom just as traders thought they could relax after the election. All of this suggests that investors might be quite apprehensive up until the morning of November 6th – and stay that way, depending on whether they have the results of the votes by then or not.

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