Gold Price Nears All-Time Highs As Market Confidence In Fed Rate Cuts Grows, Igniting Gold Miners Rally
Author: Piero Cingari | November 28, 2023 05:47pm
The glittering allure of gold is captivating traders once again, as the precious metal notches its fourth consecutive day of gains.
Gold prices have surged past the $2,040 per troy ounce (.oz) mark on Tuesday, a level not seen since the early days of May 2023.
The bullion, as closely monitored through the SPDR Gold Trust (NYSE:GLD) is now within spitting distance of its all-time highs at $2,081, briefly hit during the volatile session on May 4, 2023. It’s even creeping closer to its highest closing price ever recorded, hitting $2,063 back in August 2020.
Chart: Gold Prices Are On Track To Retest Prior Peaks
Gold On The Rise: 5 Forces at Play
Broader Dollar Weakness: The greenback’s weakness has lent significant support to gold. The U.S. dollar index (DXY), as tracked by the Invesco DB USD Index Bullish Fund ETF (NYSE:UUP), has fallen below 103 levels on Tuesday, reaching lows last seen in mid-August.
Fed’s Tone Shifts: One of the Federal Reserve’s most fervent hawkish members, Gov. Christopher J. Waller, has surprisingly taken a dovish stance during his address to the American Enterprise Institute on Tuesday: “Inflation rates are moving along pretty much like I thought,” Waller declared. He expressed growing confidence that current policy measures are well-positioned to slow down the economy and bring inflation back to the 2% target. Notably, he was also “reasonably confident” this can be achieved without a significant spike in the unemployment rate, which currently stands at 3.9%. Waller suggested that if the decline in inflation persists over several months, rate cuts could become a reality.
Rising Fed Rate Cut Bets: Following Waller’s remarks on Tuesday, the market has responded with increased bets on rate cuts in 2024. The CME Group’s Fedwatch tool, which gauges market-implied probabilities of future policy rates, now indicates a nearly 65% chance of a rate cut as early as May 2024. Traders are also estimating at least four rate cuts by December 2024, assigning a probability of 69%.
Treasury Yields Tumble: Gold’s primary enemies in financial markets, the yields on U.S. Treasury bonds, which offer a consistent and predictable return that the bullion cannot provide, are now less of a worry. The policy-sensitive 2-year Treasury yields have fallen by 22 basis points to 4.74% over the past two sessions, hitting levels last observed in early August. The yields of the 10-year Treasury note has also declined to 4.35%, the lowest since mid-September.
Improving Investment Demand: Investor demand, a previously dormant factor in 2022, is now beginning to tilt in favor of gold prices. The SPDR Gold Trust, the largest exchange-traded fund (ETF) tracking gold, has seen $1.5 billion in net inflows during November, marking the most robust monthly influx since March 2022.
Further Implications Of A Gold Price’s Rally
The surge in gold prices was propelling gold mining stocks upward.
On Tuesday, the VanEck Gold Miners ETF (NYSE:GDX) showcased a remarkable 4.5% gain, while the leveraged Direxion Daily Gold Miners Index Bull 2XShares (NYSE:NUGT) surged impressively by 8.8%. In addition, junior gold miners, tracked by the VanEck Junior Gold Miners ETF (NYSE:GDXJ), recorded a solid 3.7% increase.
Among Tuesday’s top-performing gold miners were Gold Fields Limited (NYSE:GFI), AngloGold Ashanti plc (NYSE:AU), and Newmont Corporation (NYSE:NEM), with gains of 9%, 7.5% and 6.5%, respectively.
Notably, Benzinga recently conducted a virtual event focused on the outlook for the metal industry. You can revisit this insightful discussion in the YouTube clip provided below.
