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Gold rally hits fever pitch as investors eye $US3000 price tag

The blistering rally in gold and silver has reached fever pitch as escalating tensions in the Middle East and a tight US election prompts more investors to pile into this year’s already top-performing commodities.

Bullion surged above $US2700 an ounce last week for the first time, extending its gain this year to 31 per cent. The gold price in Australian dollars also hit a record, punching through $4000 an ounce.

The rally extended into Monday trading, with gold rising to a fresh all-time high of $US2729.30 an ounce, unleashing a surge in ASX gold stocks. West African Resources jumped 7.2 per cent to $1.71, Bellevue Gold added 5.8 per cent to $1.56 and Genesis Minerals climbed 7.4 per cent to $2.47.

The bullish sentiment spilled over to the wider precious metals complex. Silver rallied to its highest level since 2012, taking its advance this year to more than 30 per cent.

The influx of traders into safe-haven assets intensified last week after Israel said it killed Hamas leader Yahya Sinwar, the supposed architect of the Palestinian group’s attack on Israel a year ago.

Geopolitical risks escalated on Monday amid reports that Israel was preparing imminent attacks on sites linked to the financial operations of Lebanon’s Hezbollah group.

Investors are also repositioning their portfolios ahead of the US election on November 5, which many pundits view as too close to call.

Demand for precious metals has been so powerful that it has temporarily broken the inverse correlation between gold and the US dollar. A weaker greenback reduces the price of gold for non-US consumers and investors.

Indeed, the US dollar has climbed about 3 per cent since September 27 as robust US economic data prompted markets to pare back the timing, speed and depth of US Federal Reserve rate cuts. But gold futures still rallied almost 3 per cent over that period driven by its safe-haven appeal.

The Commonwealth Bank is tipping that the US currency will fall 2 per cent from current levels by the end of this year and another 4 per cent in 2025, which will drive gold to an average of $US2800 this quarter and $US3000 in the final three months of next year.

“We see upside risks to our outlook given gold’s ability to find support in different financial market conditions so far this year,” said CBA’s commodities analyst Vivek Dhar. “We have been particularly surprised at the lift in gold prices during periods when the US dollar has strengthened.”

Booming demand
The latest rally in gold has been propelled by booming demand by Western investors, who largely remained on the sidelines in the first half of this year as China went on a buying spree.

While jewellery sales in China hit record levels earlier this year, they have since fallen back as Beijing rolls out measures to support the equity market, making gold a less attractive asset.

But as China’s investors take a back seat, Western traders have ramped up buying as central banks kicked off their easing cycles.

Net non-commercial positions, which reflect institutional investors and hedge funds, have risen to an all-time high, according to Bank of America, which observed that positioning hasn’t even hit over-stretched levels yet.

Australian broker Pepperstone said client flows into precious metals have been “significant” in recent days, highlighted by “huge volumes” for gold and silver exchange-traded funds.

“The precious metals market has witnessed an unprecedented strong uptrend this past year … which at this point, shows little sign of ending,” said Saxo Bank’s head of commodity strategy Ole Hansen.

“There is little doubt that many would-be investors balk at the prospect of paying record prices, but the fear of missing out on the continued rally ultimately forces many to get involved.”

Offshore gold ETFs recorded $US1.8 billion of inflows last week while foreign gold mining ETFs posted $US208 million of inflows, a significant turnaround from the outflows earlier this year.

VanEck believes gold mining stocks continue to be undervalued relative to the underlying price of the yellow metal.

Gold equities, as represented by the NYSE Arca Gold Miners Index, are trading at the same level as they were in 2020. Back then the gold price was $US600 lower, and well below the historical highs reached in 2011.

“As market demand for gold assets increases… gold equities will offer the safety of gold with the potential for higher returns relative to the metal,” said VanEck’s head of investments Russel Chesler.

“This is based not only on their gold price leverage and our outlook for higher gold prices in the medium and longer term, but also on the companies’ strong fundamentals and the expectation of a market re-rating that reflects the sector’s improved health, profitability and sustainability.”

Source: afr.com