Bullion’s golden moment may happen sooner than later

HOW many times this year has gold hit the US$2,000-per-ounce level but failed to hold above the magic mark? At least three, and counting.

With the world’s largest central bank, the US Federal Reserve, widely expected to deliver a final nail on the rate-hike coffin soon as inflation cools, a real breakthrough may be on the horizon for gold to smash through that big round number – or so, gold believers reckon.

In a “momentous” week packed with central bank meetings in the US, Europe and Japan, the US Fed is expected to raise rates by 25 basis points at its two-day Federal Open Market Committee (FOMC) meeting, which ends on Wednesday (Jul 26).

But the views are mixed on whether this will be the Fed’s last hike of the current tightening cycle that began in March 2022, given that US inflation is still trending well above the annual target.

Come what may, it appears that the tide of the rate tightening could turn soon, which should bode well for non-yielding assets like gold. Since its lows last November, the yellow metal has had a good run, having shot up for two straight quarters. A confluence of factors, from geopolitical tensions, worrying macroeconomic data and recessionary fears to inflation, has supported gold prices amid a flight to safety. The strains in the banking sector and debt ceiling fallout in the US has also fuelled the run-up in gold prices.

The global macroeconomic backdrop could be the big wild card for gold bulls. While bets have risen that the US economy may be set for a soft landing on the back of resilient data from consumer spending to the labour market, economists warn that the impact of rising rates may need more time to show up.

The post-pandemic growth recovery in China – the other economic powerhouse on which the outlook of the global economy hinges – has also sorely disappointed. China has pledged to step up support for its faltering economy, which in turn could boost demand for gold from the world’s largest consumer of bullion.

Elsewhere, the eurozone region is feeling the pinch of higher interest rates and the energy price shock led by the Russia-Ukraine war. Similarly, the UK economy has stagnated for the last four quarters. By and large, while a global recession can be ruled out, circumstances can turn in a blink of an eye. But headwinds continue to abound, and these include inflation, interest rates and geopolitical risks.

For gold watchers, this may be somewhat of a deja vu moment. During the bumpy times of the 2007-2008 Global Financial Crisis, investors flocked to the safe-haven asset on expectations that it would cross the then magic mark of US$1,000 per ounce. It did, but didn’t hold there for long. After several big misses and as traders gave up their lofty expectations, the bullion turned and there was no stopping its ascent beyond that mark.

More than a decade and a half later, another pivot point – above the key psychological level of US$2,000 per ounce – awaits the bullion. The big question is if the golden moment will unfold this year, or will the rally fizzle out.