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💡 Here’s what you’ll learn:
Key takeaways
- The price of gold rebounded last week after falling for a few weeks following a series of record highs.
- Several drivers of demand for the precious metal continue, most notably strong investment demand from ETFs.
- Additional policy or financial market risks could push prices up another 10%, UBS says.
The price of gold has risen in anticipation of the federal government shutdown, but now that it’s over, the rally won’t necessarily end.
Analysts say continued strong investment demand amid continuing economic uncertainty may continue to push gold higher.
Gold has hit a series of record highs this year, with the spot price rising to $4,360 an ounce on October 20 before falling in the weeks since to $3,970 early last week. The trend has reversed course over the past week, with the precious metal reaching a high around $4,260 on Thursday morning before giving up some of those gains later in the day.
The renewed rally reflects a market environment that, despite the end of the lockdown, has not fundamentally changed. It’s an environment that has spurred significant demand from gold-linked North American exchange-traded funds.
It is also what UBS, in a research note, sees as pushing gold to $4,700 if political or financial risks in the market increase.
Why is this important to investors?
Investors often turn to gold as a safe haven during times of economic uncertainty and financial market volatility. The outlook for the US economy is uncertain and concerns have been growing about the sustainability of the rally that has lifted stocks to record levels. Some prominent investors have suggested in recent months that portfolios should be exposed to more gold than usual.
Heavy trading volume
US gold trading volume reached a record high of $208 billion per day in October. It rose 59% in September from the previous month and another 51% in October. Demand from ETFs drove this volume, easily offsetting lower global demand for gold jewellery, bullion and coins. In the US alone, gold ETFs added physical gold to their holdings by 160% in the third quarter compared to the same period last year.
This demand may continue, given the continued cloudy geopolitical outlook, UBS said.
For example, the legislation ending the shutdown only funds the federal government until January 30. Another partial shutdown could occur at that time if Congress does not approve an additional continuing resolution or make progress on funding other departments.
Other demand drivers
Additionally, a skeptical Supreme Court last week cast doubt on the legality of President Trump’s tariff policy based on the International Emergency Economic Powers Act (IEEPA). A decision could come within several weeks, but the uncertainty in the meantime “should provide continued support for gold,” UBS said.
Likewise, the potential for additional interest rate cuts by the Federal Reserve, associated weakness in the US dollar and high levels of global government debt should send global gold demand this year to the highest level since 2011, according to UBS forecasts.
Meanwhile, the World Gold Council notes that retail demand has improved in recent weeks, with demand for gold bullion in the US “currently very strong.”
“Costco’s gold business is thriving online and in stores, driven by consumer confidence as well as firm pricing in a bull market,” the council said in a recent report.
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