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(Kitco News) – The gold market is seeing solid gains after bouncing off last week”s seven-month low. While there are still some risks in the marketplace, the analysts at the World Gold Council have said that last month”s selling pressure could represent a buying opportunity for investors.
December gold futures last traded at $1,886 an ounce, its highest level in a week and prices are up 3.7% from last week”s lows; however, the WGC said that gold has a challenging hill to climb after seeing significant selling pressure. The analysts noted that September was the fourth consecutive month of outflows in gold-backed exchange-traded products as prices declined nearly 4% last month.
Gold is currently benefiting from safe-haven demand following renewed chaos in the Middle East. During the weekend, Hamas terrorists launched a brutal surprise attack on Israel, sparking a new war that could end up pulling in Iran and the U.S.
However, analysts also note that gold remains sensitive to rising bond yields as stubborn inflation and the Federal Reserve’s commitment to keep interest rates in restrictive territory has created the biggest bond selloff on record. Some analysts have said that although bonds are oversold, there is room for them to go lower, which would push bond yields higher.
The WGC said this tug-of-war could create some volatility in the gold market through the fourth quarter.
“With bond yields continuing to move higher alongside a still buoyant U.S. economy, gold is likely to face continued turbulence over the next few weeks,” the analysts said in their latest market commentary. “But we don’t see a material downtrend being established as support remains from fragile equities, rising recession risk, inflation volatility and continued central bank interest in gold. This could represent a buying opportunity to some investors should the market become excessively short.”
The biggest drag on the gold market remains lackluster investment demand as investors flee the ETF market. The WGC said 59 tonnes of gold, valued at $3 billion, flowed out of global gold-backed ETFs last month.
“[Year-to-date] global outflows stand at US$11bn. And total holdings have fallen by 189t so far this year,” the analysts said in their latest ETF market analysis. “Overall, investors” intensifying expectations of rates staying ‘higher for longer” drove disinvestment in western markets.”
North American-listed funds set the tone last month. The report said the region”s funds saw 35 tonnes of gold, valued at $2 billion, flow out of the market in September.
“Although the US Fed paused as expected during the month, it revised up projections of US economic growth and 2024″s median interest rate significantly. And this has intensified investor expectation that rates will stay higher for longer, dimming interest in gold,” the analysts said.
So far this year, 76 tonnes of gold, worth $4 billion, has fled North American ETFs, the report said.
At the same time, European funds also kept up a significant pace of outflows, with 28 tonnes of gold valued at $1 billion fleeing the market.
“The outlook of higher opportunity costs may have caused the region”s gold ETFs to unwind further. And FX-hedged products (-6t) continued to take up a portion of the loss as the local currency weakened,” the analysts said.
So far this year, European funds continue to outpace North American markets. The WGC said that year-to-date, European investors have liquidated 124 tonnes of gold worth $7 billion.
The Asian market remains the one bright spot for investment demand in the gold space. The WGC said that Asian funds saw inflows of 5 tonnes, worth $299 million last month. This was the second consecutive month this region has seen inflows into gold.
“China continued to drive the region”s inflow amid increasing promotional efforts from fund providers, the surging local gold price and continued weakness in local assets,” the analysts said.
