Will FOMO dominate the gold market? This sets the stage for $3k gold price: Bloomberg Intelligence
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(Kitco News) FOMO — the fear of missing out — could come to dominate the gold market as an economic slowdown in the second half of the year triggers a selloff in the stock market and a move towards $3,000 an ounce in gold, said Bloomberg Intelligence.
"Central-bank accumulation and the potential for a global economic slowdown, on the back of the most aggressive rate-hike period ever, may set the stage for gold to move toward $3,000 an ounce," said Bloomberg Intelligence senior macro strategist Mike McGlone said in a report Tuesday.
One primary driver keeping the Federal Reserve hawkish is a strong stock market. This is what has been keeping gold from rallying, with U.S. Treasuries yielding about 5% and the S&P 500 up around 15% in 2023. But this performance will not last, according to McGlone.
"Bloomberg Economics' outlook for an ugly 2H may tilt the potential for a gold bull market toward a key catalyst — a stock bear market," he said. "If the 1H rising equity tide is sustained, the Fed is more likely to keep rates elevated. It's the potential for reciprocity to the biggest liquidity pump in history that's now dumping, and may draw parallels to 1929-30, when the Dow Jones Industrial Average initially fell about 50% and bounced about 50% before the Great Depression."
A big gold price supporter has been central bank gold buying, which has offset gold ETF outflows. And once the stock market begins to see significant losses, nothing will be holding gold back.
"Gold ETF holdings falling about 10% year over year to June 16 vs. the price rising around the same amount may suggest the metal is too hot, or has divergent strength," McGlone pointed out. "Our bias is the latter, as gold appears to be waiting on a Federal Reserve pivot and is being bought by some of the world's deepest pockets -- central banks."
McGlone added that the gains in the stock market are likely to be short-lived due to the coming deflationary recession. And this is good news for gold bulls who want to see gold trading sustainably above $2,000 an ounce.
"The metal's per-ounce price at about half the level of the S&P 500 in 2Q could be an advantage, particularly if the U.S. economy contracts," McGlone said. "The history of booms that go bust when excessive liquidity is removed might set the stage for gold to sustain above its $2,000 resistance."
At the time of writing, August Comex gold futures were trading at $1,946.10, down 1.27% on the day.