Gold's Surge Raises Questions: Can the Momentum Continue?
Gold took another step up in September with an unprecedented rally, marking the precious metal's biggest quarterly gain in more than four decades. While the momentum may slow in the short term, one market analyst believes gold still has further to run.
Aakash Doshi, head of gold strategy at State Street Global Advisors, suggests that as investment demand has become a crucial factor in supporting prices at historical highs, it's only a matter of time before gold reaches $4,000 per ounce.
Exceptional Performance in the Third Quarter
Gold has risen nearly 17% in the past three months, its best quarterly performance since the second quarter of 1982. Year-to-date, gold has also risen 47%, its strongest gain since 1979. September saw unprecedented inflows into gold-backed exchange-traded funds (ETFs), with the SPDR Gold Trust, the world's largest gold ETF, adding 35.2 tonnes of gold in September, including a record single-day inflow of 18.9 tonnes on September 19.
Investment Demand: The Key Driver
Doshi points out that even with this level of demand, gold ETF holdings are still well below the peak seen in 2020. He adds that gold's breakout move in August created some 'fear of missing out' (FOMO) sentiment in the market.
'For most of this rally, investors have been underweight gold,' he says. 'In January, GLD was still experiencing outflows. So, from that perspective, despite the growth, gold is not an over-allocated asset.'
Future Outlook: Caution and Optimism
Doshi says he expects investment demand to remain robust through the end of the year; however, he adds that demand should slow compared to the pace seen in September. He explains that gold has seen an extraordinary rally because investors are seeking to hedge and protect themselves against unusual market conditions.
'Given all of the risks and structural factors, high gold prices are justified, and this price level is sustainable, but the daily volatility we are seeing is not sustainable,' he says. 'Gold prices reaching $4,000 an ounce is a question of 'when' not 'if'.'
Impact of Monetary Policy and Economic Growth
Looking ahead, Doshi says the Fed's new easing cycle is creating a 'bull steepening' curve in the U.S. bond market, as short-term rates fall while long-term yields remain high. He adds that this environment should continue to weaken the dollar, creating new momentum for gold.
Meanwhile, Doshi says gold remains an attractive insurance strategy, as falling interest rates are supporting equity markets with historically high valuations. Despite the bullish momentum in the equity market, he notes that the U.S. and global economy still face significant uncertainty. While recession risks remain low, the possibility of an economic slowdown will continue to support gold's safe-haven appeal.
Potential Risks: Government Shutdown
Doshi highlights that the latest risk facing the U.S. economy is a government shutdown, due to Congress failing to pass any new budget bills. He says it's too early to determine what impact the 22nd U.S. government shutdown will have on gold and the economy.
He concludes, 'If it lasts for more than a month, then I think you will start to see negative growth consequences, which will be good for gold. The longer it lasts, the greater the risk of further credit downgrades by rating agencies.'
Support and Resistance Levels
Although Doshi believes gold rising to $4,000 is inevitable, he does not expect gold to break directly higher. He believes gold's new support level will be at $3,500, and expects buying-the-dip momentum to continue.
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