Gold: More Upside? Or Close to Topping?
Gold closed at a new record high on Friday (up 1.1% at $2,575/oz.). Having broken out of a multi-year sideways trading range in early March, the uptrend therefore remains ongoing.
With that, gold is doing its ‘usual’ job as a key barometer of liquidity. That is, given growing signs of weakness in the US economy, it’s performed well as markets have priced in looser Fed policy. Last week that was helped by comments from the WSJ’s Nick Timiraos, who talked up the chance of a 50bps rate cut at this week’s Fed meeting (and is widely considered to be a ‘mouthpiece’ for the Fed). His comments were followed by lower implied Fed funds rates, lower front end Treasury yields (as well as 10y TIPS yields), and a weaker dollar. All of which are key drivers of the gold price (e.g. see fig 1 below).
As such the question is: How much more Fed easing needs to be priced in? And, therefore, how much more fuel is there for a gold price rally? Is the US economy about to roll over into a recession? Or is it about to re-accelerate? Naturally, if it’s a recession, more Fed loosening is necessary. If it’s merely a soft landing, though, there’s already plenty of easing priced into markets (~250bps of cuts between now and the end of next year). See last week’s Longview on Friday for detailed analysis on the US macro outlook.
Of note, from a positioning perspective, the ‘long gold’ trade is looking increasingly crowded. Net long speculative positions are back at their highest level since early 2022 (see fig 2), measured sentiment readings are bullish (and back on their SELL), while gold is technically overbought (on our medium term scoring system). All eyes therefore remain focused on this week’s Fed meeting, and incoming macro data.
Fig 1: Fed policy change (Aug '24 vs. Dec '25, bps) vs. gold price (USD/oz.)
Fig 2: Gold net speculative positioning vs. gold price (USD/oz)
