(Kitco News) - According to analysts, gold continues to benefit from elevated geopolitical uncertainty and the Federal Reserve’s new easing cycle. However, this latest surge also suggests that the market is experiencing solid momentum driven by a new Fear of Missing Out (FOMO) trade, which could introduce additional risk to price action.
December gold futures last traded at $2,732.20 per ounce, up nearly 1% on the day. The precious metal is on track to close the week with a 2% gain.
Naeem Aslam, Chief Investment Officer at Zaye Capital Markets, noted that the growing FOMO sentiment in the gold market could be a sign of frothiness.
"While momentum remains with the bulls, this sharp rise feels sentiment-driven, and any hawkish shift from the Fed or profit-taking could trigger a correction," he said in a comment to Kitco News. “The higher it climbs without a pullback, the more fragile it becomes. Cautious optimism is warranted, as overbought conditions could quickly reverse.”
Daniel Ghali, Senior Commodity Strategist at TD Securities, also pointed out the increasing risks in the gold market, noting that much of the current momentum seems to be coming from over-the-counter (OTC) markets, which are difficult to track. He added that it's also challenging to assess how sustainable this rally is.
"Prices continue to melt higher, yet we can't identify any significant inflows in visible venues worldwide," he said. "Over recent sessions, gold EFPs have remained steady with the underlying rally, suggesting an OTC-based rally. Election season is underway, which may explain some added interest in gold, but clearing data does not suggest this has been a consistent trend in recent months. For example, volumes traded OTC on LBMA have declined throughout the year, despite a monthly uptick. Could gold's recent rise also be due to a decline in selling appetite, making even marginal inflows have a larger-than-normal impact on prices? Certainly, it takes a brave soul to sell gold during U.S. election week, but what happens next?"
Though analysts can't always pinpoint the key players in the market, they agree that fundamental support remains strong behind the new momentum.
"Geopolitical instability, sluggish economic growth in key regions, a shift in central bank policies toward lower interest rates, and, most recently, uncertainty surrounding the U.S. presidential election have all contributed," said Ricardo Evangelista, Senior Analyst at ActivTrades, in a note Friday.
While uncertainty lingers in the marketplace, some analysts argue that, despite gold's recent gains, it remains a solid investment.
Jesse Colombo, an independent precious metals analyst and founder of the BubbleBubble Report, said he doesn’t see froth in the market, as the rally came after a period of consolidation, even if it was a brief one.
"Gold is just getting started, and retail investors haven't fully jumped in yet," he said. “I believe the real FOMO is still ahead as we approach $3,000.”
Colombo added that a solid close above $2,700 puts gold on track to reach $3,000 an ounce.
Rich Checkan, President and COO of Asset Strategies International, echoed the sentiment, expressing optimism about gold's future.
"Gold at all-time highs is still dirt cheap. This rally is just getting started," he said. "Investors should stop waiting and jump in."
Checkan added that those concerned about froth in the gold market need to consider the broader landscape. He pointed out that there are limited options for investors looking to park their capital.
"If you have extra money, where are you going to put it? In the bank or short-term bonds when interest rates are dropping? Do you think the stock market is less frothy than gold?" he asked. "Just look at the chart—gold prices are only going higher."
Silver Outshining Gold
While gold garners much attention, some analysts suggest that investors should keep an eye on silver, which continues to outperform in the precious metals sector.
The gold/silver ratio has dropped sharply below 82 points, falling to a two-week low. Despite this, analysts note that the ratio remains relatively high, as its lowest point this year was in late May, around 72.
December silver futures last traded at $33.414 per ounce, up 5% on the day and the week.
Tavi Costa, Partner and Macro Strategist at Crescat Capital, said in a social media post that silver's rally is just beginning.
It's remarkable to think that silver is at a 12-year high, yet remains one of the most undervalued metals in history compared to gold—the gold-to-silver ratio is still at 83!
This suggests that the rally has momentum and is just getting started in my view.
Game on. pic.twitter.com/R8LQSwy3WE— Otavio (Tavi) Costa (@TaviCosta) October 18, 2024
With little significant economic data scheduled for next week, analysts expect the gold market to continue focusing on broader trends, particularly geopolitical uncertainty.
Next week, the BRICS+ nations will meet in Russia for their annual summit. According to reports, the powerful trading bloc, which counterbalances Western alliances, will discuss creating a new payment system based on a network of commercial banks linked through BRICS central banks. The goal is to reduce the U.S. dollar's role as the world’s reserve currency.
Additionally, the International Monetary Fund (IMF) will hold its biannual meeting in Washington, D.C. next week.
Along with geopolitical uncertainty, markets will be watching early data on U.S. service and manufacturing sectors, as well as sales figures in the struggling U.S. housing sector.
Economic data to watch next week:
Monday: IMF meeting starts
Tuesday: BRICS Summitt starts,
Wednesday: Bank of Canada monetary policy meeting, U.S. existing home sales
Thursday: Weekly Jobless Claims; Flash S&P Global manufacturing and service sector PMI surveys; U.S. New Home Sales
Friday: U.S. durable goods orders
