From the Federal Reserve's interest rate cut in September to next week's US election, there is actually a very interesting phenomenon in the global financial market:
Both US Treasury bonds and gold, which belong to the safe haven asset camp, have experienced a series of similar interest rate hikes during the interest rate cut cycle and have been continuously sold off; And the other continues to write the miracle of the bull market like breaking through bamboo, conquering new highs like digging into a bag
From the past correlation between gold and interest rates, this scene is actually extremely abnormal.
We have already provided a detailed explanation of the underlying factors behind the decline in US Treasury bonds and the recent sell-off, based on the latest report by Benjamin Picton, Senior Macro Strategist at Rabobank, this morning. And here, let's focus on gold again, because behind the abnormal divergence in their trends, it's hard to say there's no correlation
How strong and majestic has gold risen this year? Perhaps there is nothing more convincing than the image below. It is not difficult to see that the performance of gold's rise this year has no "rival" in the past 45 years - this is the best performance of gold in the first 10 months of a year since 1979.
As the spot gold price further climbed to the $2790 mark on Wednesday, it is now approaching the $2800 integer mark:
Gold is usually closely related to interest rates. As an asset that does not provide any returns, its attractiveness to investors usually decreases when interest rates are high, and it is usually more popular when interest rates are low.
Comparing the two stages of the past six years (January 2018 January 2020, September 2022 October 2024), it can be seen that the inverse correlation between gold and 2-year US Treasury yields still holds true.
However, it is worth noting that according to the research of Goldman Sachs analyst Lina Thomas, the inverse correlation between gold and 10-year real interest rates has already clearly broken.
Note: The red line represents the actual yield of 10-year US Treasury bonds, while the brown line represents the price of gold
Why did this scene occur? The answer given by Goldman Sachs is that since the Russia-Ukraine conflict, Goldman Sachs estimates that the demand for gold by the central bank on the London OTC market has increased five times, which greatly resets the relationship between the gold price and the real interest rate.
The source of the divergence in the correlation between the two seems to be interestingly traced back to when the assets of the Russian central bank were frozen by the West. Goldman Sachs stated that since the US and Europe froze Russian central bank assets in 2022, the amount of gold purchased by emerging market central banks has significantly increased.
Note: The trend of gold prices and the actual yield of 10-year US Treasury bonds, with the middle dashed line indicating the freezing of Russian assets by the West
Goldman Sachs also emphasized three key sources of demand in the current gold market:
Global financial and monetary authorities (central banks have concerns about the safety of reserve assets);
Investors (facing interest rate uncertainty);
Speculators (seeking safe havens).
According to a Goldman Sachs report, from a structural perspective, more central bank demand (increasing by 9% by the end of 2025) and the gradual increase in gold ETF holdings after the Fed's interest rate cuts (+7%) will be sufficient to offset Goldman Sachs' assumption of a gradual normalization of gold positions (-6%).
Goldman Sachs' new model estimates that for every 100 tons of gold demand increase, gold prices will rise by 1.5% -2%.
This also indicates that even if the purchasing speed of central banks around the world slows down to 30 tons per month by the end of 2025, which is about one-third of the average purchasing speed of 85 tons observed since 2022, the gold price will rise by another 9% by the end of 2025.
In addition, in the current precious metal market, the safe haven demand that has emerged around the US election is clearly worth mentioning. History has shown that when uncertainty arises and investors seek safe havens, gold holdings tend to rise. For example, during the announcement of six trade tariff policies in the United States in 2019, asset management companies' net long positions in gold increased by nearly 900 tons from May to October of that year, as shown in the pink area in the following chart
Goldman Sachs stated that as the US presidential election approaches, Western investors are also returning to the gold market. Gold may provide benefits in hedging against potential geopolitical shocks, including the potential escalation of trade tensions, subordination risks for the Federal Reserve, and debt concerns. As interest rates decrease, the holdings of gold ETFs in Western markets will gradually increase, which is consistent with their historical relationship.
Goldman Sachs currently expects gold prices to reach $2900 per ounce by early 2025, higher than the earlier estimate of $2700 per ounce, and $3000 per ounce by December 2025.
Coincidentally, Barry Dawes, Executive Chairman of Martin Place Securities, recently pointed out that the current gold bull market seems to be in an upward parabolic shape. He said, "Let's see how high this vertical surge will be... The breakthrough of gold stocks indicates that the current peak price may still be a short-term high
He expects that the price of gold is moving towards exceeding $3000.