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Gold’s unwavering bull market

EHSAN KHOMAN
Head of Commodities, ESG and
Emerging Markets Research –
EMEA
DIFC Branch – Dubai
T:+971 (4)387 5033
E: ehsan.khoman@ae.mufg.jp

 

SOOJIN KIM
Research Analyst
DIFC Branch – Dubai
T:+971 (4)387 5031
E: soojin.kim@ae.mufg.jp

 

MUFG Bank, Ltd.
A member of MUFG, a global financial group

Gold is breaking out to new all-time highs and continues to surprise even our above-consensus forecasts, both in its upward intensity as well as in outpaced cues from FX markets. A confluence of stronger bets on Fed rate cuts this year, persistent large US fiscal deficits, the risks of inflationary policies after the US elections and renewed geopolitical pressures, as well as relentless EM central bank demand, are demonstrative of gold’s structural resilience. Such framing may pull more funds back into gold-backed ETFs, feeding a virtuous cycle of further appreciation and additional investor positioning. On net, gold’s bullish skew remains resolute and we reiterate our 2024 outlook call that gold remains the most bullish commodity play this year. With the aforementioned factors still set to play out ahead of us, we mark-to-market our gold price forecasts higher to USD2,750/oz by year-end (vs USD2,350/oz year-end previously).

Energy

After rising ~USD10/b in June, Brent crude is unwinding some of the bullishness this month, but prices remain comfortably north of the OPEC+ put threshold of UD80/b. Investors are digesting a marked miss in China’s GDP reading, IEA global oil demand downgrades for 2024-25 as well as Hurricane Beryl passing without major energy market disruptions. Meanwhile, European natural gas (TTF) prices is advancing this week after the US Freeport LNG export facility said it plans to a slow return to service and warm weather in southern Europe bolsters cooling demand.

Base metals

The copper-gold ratio – a long-standing soothsayer for US Treasuries – is signalling much lower yields. Gold’s (avatar of macro fear) surge, and copper’s (key barometer of the health of the global economy) trend lower since setting a peak in May 2024, is sounding a warning that Treasury yields are too lofty and look set to retrace in the months to come.

Precious metals

Silver is silently, but considerably, outperforming gold as the macro backdrop pivots in favour of the precious metals complex. Strengthen prospects of Fed cuts this year is burnishing silver’s standing as one of the year’s best-performing commodities, with the gold-silver ratio shifting back towards the norm – from 90 in February 2024 to ~79 today (long-run average is 68).

Bulk commodities

Some of the world’s largest iron one producers – BHP Group, Vale and Rio Tinto – are ramping up supply, adding tons of the steel-making commodity to the seaborne market even as top importer China struggles with a demand-sapping property crisis.

Agriculture

Cocoa prices continues its decline owing to better weather in top producers in West Africa and investor selling. What’s more, reports suggest that Ivory Coast’s October-to-March main cocoa crop is expected to start early in most of the country’s growing regions, supported by recent drier weather.

Core indicators

Price performance and forecasts, flows, market positioning, timespreads, futures, inventories, storage and products performance are covered in the report.