Just as market doubts emerged about the longevity of the gold bull run, the precious metal has staged a powerful rally, charging back towards record highs. A combination of soaring prices, a shift to bullish technical patterns, and potential supportive policy shifts are converging with unusual clarity – suggesting the “golden era” for gold may have only just entered its second act.
During Wednesday’s U.S. trading session, gold and silver extended their sharp gains, both hitting three-week highs. COMEX December gold futures surged by $73.80 to at $4,189.00 per ounce, while December silver futures jumped $2.111 to $52.86 per ounce. Although the pace of gains moderated after gold broke above $4,100, analysts widely believe fundamental factors still point to further upside.
The strength in the precious metals market is bolstered by the impending reopening of the U.S. government. A return to normal operations is expected to restart the flow of economic data, which could pave the way for the Federal Reserve to cut interest rates at its December meeting – a development typically positive for gold.
Market analysts have notably shifted their stance. Alex Kuptsikevich, Chief Market Analyst at FxPro, who held a pessimistic view on gold just last week, stated in a report update this Tuesday that gold’s successful breach of a key short-term resistance level has created fresh bullish momentum. He also noted that while prices remain elevated, the two-week pullback has alleviated previously overbought conditions. October’s sharp decline is no longer seen as a bubble bursting. While speculators did drive prices up too rapidly, many were late entrants who quickly exited positions at the first sign of trouble, triggering that correction.
Nick Cawley, Market Analyst at Solomon Global, is similarly optimistic. He pointed out that both gold and equities are benefiting from strong market expectations that the Fed will continue cutting rates next month. According to the CME FedWatch Tool, the market is currently pricing in a greater than 65% chance of a rate cut by year-end. With persistent expectations for accommodative monetary policy and steady physical buyer demand, the fundamentals for gold and silver remain robust. Barring a significant shift in these factors, both metals are likely to continue their ascent in the coming weeks.
Persistent rate-cut expectations and ongoing liquidity injections are fueling simultaneous gains in both gold and equities, but this is also keeping inflation expectations elevated. Mike McGlone, Senior Market Strategist at Bloomberg Intelligence, projected in his latest precious metals report that gold will continue to outperform the S&P 500. While the S&P 500 is up nearly 16% year-to-date, gold has soared by approximately 60%. The S&P 500 to gold ratio now stands at 1.66, near its lowest level since late March 2020.
McGlone noted that despite the S&P 500’s low valuation relative to gold, its valuation compared to GDP growth and global equities is high. A declining SPX/gold ratio is particularly concerning when stock market risk indicators, like the VIX volatility index, are at abnormally subdued levels. Market volatility always mean-reverts; it’s only a matter of time. Unless equity risk indicators can remain exceptionally low persistently – a scenario McGlone views as increasingly unsustainable – the SPX/gold ratio is likely to fall further.
Historically, gold has often underperformed during rising equity markets. This time, however, appears different. Investors are increasingly viewing gold as an effective diversification tool to hedge against stock market risk. Analysts also highlight that with the unsustainable growth of U.S. government debt, investors are pivoting away from U.S. Treasuries as a primary equity hedge, further enhancing gold’s appeal as a strategic asset in diversified portfolios.
