The spot price of gold rose to $4,680.70 per ounce on Monday (its highest level since May 14). By the end of trading, it stood at around $4,639. Since the start of last week, the metal has risen in price by more than 5%.
Gold’s surge came amid a weaker dollar and falling U.S. Treasury yields, according to Reuters. The market received additional support from the U.S. Treasury’s decision to increase the volume of long-term Treasury bond purchases.
However, Citi believes that this strong price movement is not yet backed by equally strong physical demand. According to the bank’s analysts, gold traded at $4,000 per ounce in late June and July. In August, the price recovered and held near the 100-day moving average—approximately $4,380—for some time, after which it broke above it.
“The latest rally is largely driven by speculative flows—in particular, an inflow of funds into futures,” according to a Citi note. The bank believes that for gold to continue rising, physical demand will need to strengthen.
In China, retail investors are not yet rushing to buy the metal despite rising prices, and in India, premiums over global prices remain negative, Citi notes.
Investors are now awaiting a speech by Federal Reserve Chairman Kevin Warsh in Jackson Hole. The Fed chairman will speak on August 28 at the annual symposium in Jackson Hole. Investors are looking to him for signals regarding the U.S. central bank’s future policy and, in particular, the outlook for interest rates.
This is of critical importance for gold. If Warsh takes a hawkish stance, the dollar and bond yields could rise, putting pressure on the metal. A more dovish signal, on the other hand, could support demand for gold.
That is precisely why Citi calls the upcoming speech a binary risk for the market: hawkish rhetoric could halt the rally, while an unexpectedly dovish stance would send a strong positive signal.
For now, gold remains near record highs, but further gains will depend on whether real buyers emerge who are willing to support prices following the speculative surge.
