Gold market rally
The first 2 months of 2024 were marked by record sales of gold ETFs. Investors were massively withdrawing from the asset, against the backdrop of price growth to a historic high. However, the price not only did not fall, but continued to rise. Why?
We wrote about this repeatedly in Q3-Q4 of last year. There are several reasons for the rise in the price of gold. And further continuation of the rally.
1- Huge demand of Central Banks. Their leaders are not only thinking about inflation, which is rapidly devaluing fiat money held in bank reserves. Many countries look at the frozen assets of the Russian Central Bank and realize that they do not want the same situation. Yes, it is not relevant for them now. But what will happen in 3, 5, 10 years? Buying gold at least diversifies and reduces country risks
- Potential decrease in interest rates by the US Federal Reserve. At the end of last year, investors expected monetary policy easing to begin as early as Q1 2024. However, this did not happen, due to not very good inflation figures.
But politicians, in the run-up to the presidential election, continue to pressure the Fed, demanding a reduction in interest rates. What is important for the market is not even the very beginning of the reduction (date), but expectations. And it is on these expectations that the rally in the gold market continues
- Asset rotation. Let's be honest! Everyone has long been tired of waiting for gold to finally rise sharply. It didn't happen in 2020, 2021, 2022 or 2023. We have experienced COVID, rising inflation, uncontrolled money printing. Russia's war with Ukraine has begun and the Arab-Israeli conflict has moved back into an active stage.
None of these events pushed gold to new highs. Investors and speculators were simply tired of waiting. But we know the main market law. When no one is waiting for growth anymore, that's when it starts. That's what we're seeing right now in real time.
When will the rally stop? It's a question being asked more and more often. We can change the question. And ask. Why does it have to stop at all? Did it start so long ago? Has gold had time to rise a lot? Is the demand for it starting to decline a lot?
Rather, we can talk about small breaks and corrections of the growing trend. But if we imagine a return to the range of $1700-1800 per troy ounce, then a trend move to the $2500 mark is more likely.
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