Gold futures on COMEX hit a historic $4,000 per ounce late on Tuesday as record monthly ETF inflows continued to boost prices.
The World Gold Council expects the gold price to hold on to its gain and there could be more upside in the coming weeks.
“Our Gold Return Attribution Model (GRAM) suggests political tension, strong options market activity, and currency weakness played a key role in gold’s performance last month,” WGC said in its market commentary on Wednesday.
The only drag came from some rebalancing and profit-taking – captured in a gold price lag in the model and reflected in the intraday price dip on 30 September, which was quickly bought.
Gold ETFs experienced their most robust month on record, with net inflows reaching $17.3 billion (146 tonnes) in September.
North America led this surge with $10.6 billion, followed by Europe with $4.4 billion.
Asia also contributed significantly to the rally, attracting $2.1 billion, while other regions reported more modest inflows.
Concurrently, COMEX managed money net long positions bolstered gold’s price appreciation, adding $9 billion (+33 tonnes).
Equities on edge
For US stocks, September typically marks the year’s weakest month, while October is notorious for significant corrections.
This period generally makes equity investors apprehensive.
“The likely threat to equities is acute, given lofty valuations, goldilocks earnings projections, high market concentration, extended positioning, and technical red flags,” the council said.
Gold acts as an excellent long-term diversifier and a reliable short-term hedge against drops in equity value.
But because gold is not a contractual hedge, the good performance during equity corrections isn’t guaranteed.
What does gold have left in the tank?
A potential concern exists that gold, and by extension, gold investors, may not react swiftly to a sudden drop in equity markets, according to WGC.
This is largely due to gold’s current appearance of being overbought.
From a tactical perspective, gold may struggle to attract marginal investment buyers in this scenario, despite light long-run strategic positioning, the council added.
Source: WGC
Another concern is the potential for several factors to weigh on gold’s performance.
These include oversold conditions in the dollar, overstated market fears, and other elements that could work against the metal.
The World Gold Council (WGC) said it has examined various drivers during previous equity market drawdowns and found that current conditions are not supportive of gold.
According to the council, the metal’s performance during market sell-offs is primarily influenced by movements in the US dollar, while its prior valuation plays only a secondary role.
Source: WGC
“The trajectory of yields only matters if we include the volatile mid 1970s and early 1980 observations, while the level of spreads only matters if we exclude the volatile 1970s.
Gold price outlook
“Looking outside these factors, central banks have shown a propensity to buy dips over the last three years,” WGC added.
“And so, it seems, have other investors.”
Despite a brief intraday gold selloff on September 30, prices quickly recovered by the close, indicating sustained investor interest.
This suggests that even at current price levels, investors are poised to enter the market, driven by numerous compelling factors to consider gold.
Government shutdowns, persistent trade tensions, ongoing employment struggles amid inflation concerns, and dollar-hedging practices are all contributing to sustained pressure on a key driver of gold prices.
WGC’s analysis, though indicative, suggests gold is likely to maintain its value and potentially appreciate further if equities see corrections, given the “plethora of supportive factors elsewhere”.
Perhaps only a major liquidity squeeze could upend both gold and equities, but there are no clear signs of fractures in credit or banking sectors…yet.
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