After seven weeks of consecutive rises, we could see a slight downturn. Gold hit a new all-time high of €2577.6/ounce on Wednesday 30 October, and on Thursday 31 October we (finally?) saw a fall of 1.8%. The yellow metal had not recorded such a daily fall since August 2024. With a monthly RSI (relative strength index) of 87, gold is overbought and it would be healthy to digest such a sharp rise properly.
Demand in Q3 2024
The World Gold Council (WGC) report for the third quarter of 2024 shows that total demand for yellow metal rose by 5% year-on-year to 1,313 tonnes, a record for a third quarter. The value of this demand rose by 35% year-on-year to exceed $100 billion for the first time in history. Central banks are continuing to buy gold, even though we are seeing a 49% fall compared with Q3 2023. More importantly, ETFs (Exchange Traded Funds) posted inflows of 94 tonnes, a turnaround after 9 consecutive quarters of outflows.
Bullish backdrop
Geopolitical tensions persist and remain a bullish factor for gold (Ukraine, Middle East, Taiwan, etc.), which plays its role as a safe-haven asset. On 17 October, the ECB cut its main key rate for the 2nd time in a row, to 3.25%, given that inflation was below 2% in September.
Source: L’Echo
However, inflation in the eurozone rose to 2% in October. For the time being, the ECB's target has not been exceeded, but we will have to keep an eye on whether inflation picks up again as interest rates fall.
Source: Inflation en zone euro (tradingeconomics)
Falling interest rates and inflation that remains a threat are bullish factors for gold. Uncertainty over the imminent US elections may also be prompting some investors to own the yellow metal. In October, the BRICS held their summit in Kazan, Russia, which was attended by 13 new ‘partners’.
Source: brics-russia2024.ru
The nine members of the BRICS account for over a third of global GDP (measured in purchasing power parity), over 40% of the world's population and around 30% of global oil production. By contrast, the G7 countries account for less than 10% of the world's population and less than 30% of GDP (measured in purchasing power parity).
And their share of the world economy is shrinking, while that of the BRICS is growing. The BRICS control 42% of the foreign exchange reserves of the world's central banks. The ‘Global South’ continues to develop, confirming the organisation of a multipolar world.
As a result, the process of global de-dollarisation is set to continue and even intensify. Indeed, gold continued to rise in October despite a strengthening US dollar, indicating a growing loss of confidence. For the BRICS, gold is the main potential alternative to the US dollar. They are currently the biggest buyers. In the West, the yellow metal is still relatively rare in portfolios, despite its current performance.
But what will happen when a turnaround begins?
This suggests that gold still has plenty of room for improvement. Having said all of the above, we should not forget to recall the most important point. The fundamental factor behind gold's rise is the loss of value of money. Money creation generates inflation and money loses its value, because a larger quantity of money drives out an unchanged quantity of goods and services. Against this financial backdrop, gold remains a must-have asset, even if short-term declines, corrections and consolidations cannot be ruled out, and are even welcome if a healthy bull market is to be maintained. More and more investors will see these as buying opportunities.
