Money flows in, gold price breaks out continuously

Even as central bank buying appears to be easing, the news surrounding the upcoming U.S. election could amplify safe-haven demand for the precious metal, according to Daniel Ghali, senior commodity strategist at TD Securities.

This expert commented that some dynamics in the gold market are changing, but there is still a lot of room for gold prices to increase. Geopolitical instability will support gold prices to rise to record levels:

“In the medium term, there is a significant inflow into gold. According to our analysis, some investors are holding a very large amount of gold compared to history. I think the gold market is telling us that there is a lot of anxiety around the upcoming US election season,” Ghali said.

Ghali agreed that market participants are reluctant to sell in such a bullish environment, pointing to a number of factors supporting the precious metal’s record high.

“There are many reasons to buy gold. Geopolitical uncertainty, especially in the Middle East. The Federal Reserve has just entered an easing cycle,” he told Bloomberg. Ghali said central banks are a key part of the record rally in gold.

Asked whether he saw a reversal in government gold buying and what impact that would have on gold prices, he said: “I think central banks play an important role when it comes to the current gold rally. But they don’t dictate the direction of gold prices.”

Another focus for investors this week is the BRICS meeting. The Associated Press reports that the BRICS group of developing economies “aims to rebalance the Western-led world order. And its membership is expanding rapidly. Iran, Egypt, Ethiopia, the United Arab Emirates (UAE) and Saudi Arabia joined in January; Turkey, Azerbaijan and Malaysia have formally applied, and several others have expressed interest in joining.”

A key goal of the group is to move away from a dollar-dominated global trade, a concept known as “de-dollarization.” This concept is beneficial to the gold market.

Western countries should pay more attention to the soaring price of gold, according to Mohamed El-Erian, former CEO of PIMCO and now president of Queens' College, Cambridge. He said the precious metal's continued rise reflects growing interest in alternatives to the US dollar-based financial system.

“Something strange has happened to gold over the past year. As it has set new records, it has seemingly decoupled from its traditional historical drivers, such as interest rates, inflation and the US dollar. Moreover, the consistency of its gains has contrasted with the volatility of key geopolitical events,” El-Erian wrote in the Financial Times on Monday.

He said the rise in gold prices in any case indicated “the presence of something” beyond short-term economic, electoral and geopolitical developments. “And that is a trend that the West should pay more attention to,” he said.