I've said it once and I'll say it again (and again, and again). You just can't keep a good gold down. As the end to the US government shutdown draws near, that saw risk assets rally since late Friday and in the opening stages this week. The curious thing though is that gold also surged higher with near 3% gains yesterday. Is it a coincidence or are gold traders getting ahead of the curve on this one?
The rush higher now sees gold contest the 50.0 Fib retracement level of the swing lower in late October. The over 10% dive in gold now sees price come back up by roughly 6% already from the bottom near $3,900.
From a technical standpoint, holding above the 50.0 Fib retracement level is a relatively important one in ensuring gold bulls have the right platform to hunt down $4,200 next. And after that, I would argue that the next key point is the October highs around $4,375-81.
But if risk trades are rallying, why is it that gold - often deemed as a safe haven asset - also surging higher?
Is it a coincidence in the sense that gold has also turned to be a sort of risky asset? That means whereby traders and investors are pouring excess liquidity into the precious metal? Perhaps so but the reasons for doing so are a bit convoluted. That as the fundamentals continue to dictate that gold remains a relatively unmatched hedge against global uncertainty, US policy uncertainty, anxiety over interest rates and inflation, as well as concerns over the mounting debt among major economies such as the US, Japan, and France.
In some sense, it is still a safety hedge so to speak. And in that lieu, does that mean gold traders are the ones getting ahead of the curve over everyone else?
That especially when you see stocks continue to rally back to near the peaks again with the jump higher in Wall Street yesterday being nothing short of inspiring.
But when you put two and two together, it feels like something's gotta give eventually.
For the time being, global central banks are still stepping up their gold reserves and ETF buying remains robust with surging demand as seen with ETFs. On the latter, gold ETF purchases totaled to $8.2 billion in October and that represents a 6% jump in just a single month - marking a fifth straight month of inflows. And of note, China contributed to $4.5 billion of that. 👀👀
Sentiment is definitely still strong but if traders and investors are feeling that fervent over gold, what does that say about the risk mood in the big picture? If it's mostly an inflation story, then it feels like there might be a deep reckoning coming at some point for risk trades. That especially if it puts off the Fed from cutting rates going into next year.
Otherwise, gold may be underpinned now but if the tariffs inflation narrative dies down next year, that could yet halt any further major upside potential in 2026 for a moment at least. That considering the surging run higher that we've seen since last year. If so, then risk trades can breathe easy and we could continue to see gold and stocks climb hand-in-hand.
However, it wouldn't be too farfetched to argue that for all the reasons gold continues to move higher, they could come back to bite at equities and risk at some point in the future.
