"Beyond $2460, Gold Can Hit $2750+ By US Election"
Conviction Thinking Report by SocGen
[W]e find that the gold price has been on a secular upturn since 2018 and see a possibility of it reaching the $2750/2770 level by year end.
Contents (2400 words)
Intro: Price Drivers Scrutinized
Key Points
Soc Gen’s Editorial
EM central banks’ diversification strategy
Asian retail buying
Technical analysis
Appendix: Events and Asset Returns
Conviction Thinking
Geopolitics should continue to drive the gold price ahead of the US election
We see a case for staying positive on gold, assuming the current context continues – i.e. inflation stickiness, problematic public deficits, geopolitical dangers, and diversification by central banks/monetary authorities.
1- Intro: Price Drivers Scrutinized
In a well written report put out by Soc Gen’s Cross Asset Team made up of the bank’s Senior Commodity Strategist Florent Pele, Global Head of Asset Allocation Alain Bokobza, as well as heads of Commodity, Corporate, and even Technical trading, The bank seems to be “coming out” on gold now. Their assertion is simple. The drivers pushing Gold prices higher will at least remain in place until the 2024 US Presidential election is resolved
Given the current situation, Soc Gen says “stay positive on Gold”. Their specific criteria are: inflation stickiness, problematic public deficits, geopolitical dangers, and diversification by central banks/monetary authorities. None of which they see has a significant hope of resolving until after the end of the year.
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Before digging into this report, let’s first briefly address the probability each of the above drivers remain in place.
Inflation Stickiness
On a horizon of 3 to 6 months, there will very possibly be inflation “unsticking” as the last of its current problems—housing and services inflation— slip back a little. But this is noise. The kind of inflation we are incurring now is a manifestation of secular change baking into the economic cake for over 3 years. Unless those changes get “unbaked” or at least stop progressing, inflation will continue to rear its ugly head.
Inflation is the result of policy. Any retreat in inflation is temporary as long as the drivers creating it remain in place. Inflation is the symptom, not the driver.
Bottom Line: as long as the other drivers listed stay in place, this isn’t going anywhere.