Gold prices breach all-time high but a strong case for a weaker commodity persists

Although gold hit an all-time high above $2 450 in May, the precious metal has retraced more than 5%. SUPPLIED.

Although gold hit an all-time high above $2 450 in May, the precious metal has retraced more than 5%. SUPPLIED.

Published Jun 19, 2024


As gold prices rally on global markets, analysts are sharply divided over future prospects of the precious commodity, with some bullish and others seeing a tapering off in bullion prices.

Gold exchange traded funds (ETFs) experienced inflows in May after 12 months of losses, say analysts, citing data from the World Gold Council.

This has coincided with spot gold prices reaching record levels although the gold ETF holdings have been in decline for the better part of 2024.

“So, with all these factors coming into play, there’s a strong case for weaker gold in the coming month,” says Saqib Iqbal, financial analyst at yesterday.

However, other analysts believe that with ongoing geopolitical and fiscal fragility currently combining to forge a path towards a sustained and multi-pronged global pull on gold supplies, there was likely to be a trigger into one of the strongest bull markets for gold.

“Despite almost non-stop selling by Western investors over 2023 and into 2024, gold has easily breached previous all-time-highs, and is currently trading above $2 300 (R41 626) per ounce,” said James Luke, fund manager Metals at Schroders.

There has been sustained gold reserves buying from Eastern central banks, investors, and households in the past few months led by China.

There has also been significant demand increases for gold in the Middle East and elsewhere.

“Yet while gold prices have been rallying, gold equities have lagged the bullion price. Despite strong financial fundamentals, driven by this Eastern-led gold bull market, valuations are close to 40-year lows,” said Luke.

He added that with gold prices averaging $2 200 (R39 600) per ounce in the year to date framework, there was likely to be a slow down in cost inflation was set to slow down, leading to “strong margin expansion and cash flow generation” for the rest of the year.

“The gold equity sector has been basically ignored - but we think that will change. If there was ever a point to include gold equities in a multi-year precious metals allocation, we think it is now,” said Luke.

Although gold hit an all-time high above $2 450 (R44 100) in May, the precious metal has retraced more than 5%.

Meanwhile, Iqbal said he believed that gold prices “will come down slightly” from their current levels.

“I think gold prices will come down given the Fed maintains its cautious approach. I see prices ranging $2 250-$2 300 (R40 500 - R41 500) in the coming month,” said Iqbal.

It was more likely that gold prices will rise beyond the $2 400 (R43 200) per ounce level if there is consistent softer inflation and the unemployment rate edges higher.

This would push the US Federal Reserve to cut rates in September. “Only then can gold prices rise beyond $2 400 (R43 200).”

In any case, there was a further aspect to the gold price performance. Having bought gold reserves for 18 months, China has halted gold buying.

China's yearning for gold began to fade in April when the People's Bank of China purchased just 60 000 troy ounces—as opposed to 390 000 ounces in February and 160 000 ounces in March.

Analysts said the record-breaking gold rise may temporarily dampen demand.