Gold Prices Hit Record Highs in August 2024, Exceeding $2,500: UBS Analysts Say Market Not Overvalued
In August 2024, gold prices soared to new heights, surpassing $2,500, but UBS analysts are confident that the market is not overvalued. They attribute the surge to favorable macroeconomic conditions, investor positioning, and market dynamics, indicating the potential for further price increases.
Factors such as dovish Fed expectations, lower real rates, and a weaker US dollar have all contributed to the uptrend in gold prices. Monetary easing is expected to support gold by reducing real interest rates and weakening the US dollar, both of which typically drive gold prices higher.
Geopolitical risks and uncertainty surrounding the upcoming US elections have also boosted gold’s appeal as a safe-haven asset. The recent weakness in the US dollar has provided additional momentum to gold’s price rally.
Despite the price surge, UBS analysts believe that market positioning is not overly extended. Net long positions on Comex have risen but remain below historical peaks, indicating room for further investment in gold without excessive risk.
Inflows into gold exchange-traded funds (ETFs) continue to show strong investor interest in gold as an investment. UBS expects these trends to persist, especially as the Federal Reserve embarks on rate cuts, making it cheaper to hold gold positions.
Historical relationships influencing gold prices have also been reestablished, with gold’s negative correlation with US real interest rates stabilizing. This suggests that gold will benefit from a lower rate environment in the future.
UBS notes some weakness in physical gold demand, particularly in major markets like China and India. However, seasonal factors ahead of festivals like Dussehra and Diwali are expected to revive physical demand despite higher global prices.
Central banks in emerging markets, such as India, Poland, and Uzbekistan, continue to add to their gold reserves, indicating ongoing support for gold as a safe-haven asset.