Gold’s Record Rally Sparks ‘FOMO’ Among Precious Metal Traders and Investors – Saxo Bank
Gold prices have witnessed a slight decline on Wednesday after experiencing an unprecedented rally driven by safe-haven demand amidst global geopolitical uncertainties. This comes as the market’s attention shifts towards the upcoming U.S. inflation data.
On the trading day, spot gold experienced a minor drop of 0.3% to $2,347.06, following a record-setting peak at $2,365.09 during the prior session. The metal has impressively accrued around a 14% gain year-to-date.
Ole Hansen, the Head of Commodmodity Strategy at Saxo Bank, highlights the behavior of market participants, stating, “Fear of missing an ongoing rally is creating a very strong buy-on-dip mentality. This is, in turn, reducing the risk of recent established longs being challenged.”
The sustained interest in gold is backed by multiple factors. These include geopolitical tensions emanating from the conflict between Russia and Ukraine and the ongoing crisis in the Middle East. Moreover, the driving forces include strong retail demand from China amidst its deepening property market troubles and the volatility in stock markets leading to falling deposit rates. This scenario has steered investors towards considering gold as a safer investment alternative, seemingly insulated from the broader economic struggles.
Hansen further elaborates on the shifting focus within the gold market, “The focus is changing from the negative impact of lower rate cut expectations towards support from a higher and more sticky inflation outlook.”
Though gold has traditionally served as a hedge against inflation, the prospect of higher interest rates—aimed at curtailing elevated inflationary pressures—tends to diminish gold’s attractiveness since it does not yield any interest. Yet, the metal continues to draw fresh momentum, benefitting from the overall strength seen across other industrial metals. Notably, the appeal is also attributed to the relative affordability of gold in comparison to silver, which, unlike gold, did not enjoy the same level of demand/support from central banks in the past few years, as highlighted by Saxo Bank.
In addition to gold’s ascension, platinum has been closely monitored by market participants. Saxo Bank points out that while gold’s valuation progresses, platinum has seen its discount to gold escalate, with the ratio peaking at a record 2.5 before settling at a current 2.4 amidst signs of technical buying beginning to surface.
The platinum market, vital for its use in neutralizing harmful engine emissions, among other industrial and jewelry applications, is poised for an expected deficit widening in 2024. As of early trading hours, platinum was observed trading higher by 0.41% at $995.10.
The brokerage concludes with an observation on the platinum market’s potential, “But, until we see inventories that built up in recent years being consumed, the market will likely struggle to attract the much-needed demand from investors in ETFs who have maintained a near-unchanged holding around 2.9 million ounces since November, down from a record 4 million ounces in July 2021.”
This blend of geopolitical risks, economic uncertainties, and shifting market dynamics underscores the complex yet intriguing nature of the precious metals market, particularly gold. As investors globally navigate these turbulent times, gold’s allure, underscored by its recent rally and the pervasive fear of missing out (FOMO), continues to capture the attention of traders and investors alike.
