Gold Has Gone Up 55%, Is It Still Worth Purchasing?
Gold prices held steady at around US$4,070 per troy ounce in Wednesday morning trading, after previously rising 0.6%. Investors are still weighing negative sentiment from the global stock market plunge, concerns about overvalued technology stocks, and diminishing hopes for an interest rate cut in the United States. Nvidia's earnings report, due out Wednesday evening local time, poses a major test for stocks related to artificial intelligence (AI).
On the one hand, gold typically benefits during stock market volatility because it is considered a safe haven. However, in the short term, gold prices could also be under pressure when market participants are forced to close leveraged positions, leading them to sell gold to increase liquidity. This has led to cautious gold movements despite increasing market uncertainty.
Comments from several Federal Reserve officials in recent days have further lowered expectations for a December interest rate cut. Interest-rate swap instruments now reflect only a 50:50 chance, whereas two weeks ago the market was almost entirely betting on a quarter-point cut. The next important data release is the US September employment report, which will provide a snapshot of economic conditions following the six-week government shutdown.
In terms of year-to-date performance, gold continues to shine. So far this year, it has risen around 55% and is poised for its best year since 1979. This rise is supported by massive central bank purchases and growing investor appetite for protection from sovereign debt risks and currency volatility. A Bank of America survey showed that global investors expect gold to be the second-best performing asset next year, second only to the yen among major currencies.
Looking ahead, attention is also focused on the minutes of the Fed's October 28-29 meeting, due to be released Wednesday evening. This document could provide clues as to when the central bank will resume expanding its balance sheet through asset purchases to manage bank reserves. Additional liquidity and signals of looser policy are usually good news for precious metals. At 8:25 a.m. Singapore time, gold prices edged up 0.2% to US$4,076.34, with the dollar remaining flat, silver slightly strengthening, and palladium and platinum weakening slightly. (asd)
Source: Bloomberg.com
