(Kitco News) - The gold market is once again firing on all cylinders and trading near fresh all-time highs. According to one market analyst, the precious metal has room to run higher.
Overnight, August gold futures pushed to a session high of $2,487.40 an ounce, and they continue to hold most of their gains as the North American trading session kicks off on Wednesday. August gold last traded at $2,484.80 an ounce, up 0.68% on the day.
In a note published late Tuesday, Chris Weston, Head of Research at Pepperstone, said that gold’s fundamentals have clearly shifted, and that $2,500 an ounce is the next major test on the horizon, with $2,600 as another potential target.
Gold got the green light to take off last week as markets started to aggressively price in a rate cut from the Federal Reserve in September. According to the CME FedWatch Tool, markets see a 98% chance of easing at the September meeting.
“The market has unwavering confidence that the Fed is about to embark on an easing cycle from September. As Fed rate cut expectations increase, gold has held a close, albeit inverse, relationship with the level of rate cuts priced for the December FOMC meeting, and further out into late 2025,” Weston said in his note.
“Traders have seen that in 3 of the past 4 Fed easing cycles, goldd has rallied strongly in the six months after they ease. Four cycles is perhaps not a huge sample size, but enough for some to front-run a potential re-run of form,” he said.
Not only has sentiment turned bullish, but Weston noted that the rally is also backed by technical bullish momentum. He pointed out that Tuesday’s rally was backed by increased volume across the board in futures markets, options, and ETFs.
“One can argue that systematic momentum and trend-following players (CTAs) have had a huge hand in driving the futures and spot gold moves [on Tuesday],” he said in his note. “In the ETF space, on the day we saw the GLD ETF trade 11.048 million shares, more than double the 15-day average. The options market is also speaking out, with gold 1-week call implied volatility trading at a 1.5 volatility premium to 1-week puts. This is not yet at extreme reads, but the relative demand for short-dated call options is a sign of increasing bullish sentiment.”
Weston also pointed out that gold’s rally is not just a North American event, but there is broad global interest in the precious metal.
“We’ve also seen new all-time highs in XAUJPY, XAUSGD, and XAUCNH, with XAUAUD and XAUEUR also looking strong as well. So the momentum in the yellow metal is not just a USD story,” he said.
Along with the expected lower interest rates, Weston said that gold is also garnering a renewed safe-haven bid after former President Donald Trump was officially named as the Republican presidential candidate at this week’s Republican National Convention.
“The betting markets price the prospect of Trump becoming President has risen to nearly 70%, and with JD Vance as Trump’s running mate, the prospect of a hard-lined protectionist approach towards China, Mexico, and potentially Europe has many questioning what this could mean for global trade and inflation,” he said.
