Gold continues to play the long game

[View this email in your browser]( [Youtube]( [Kitco Metals]( Editor's Picks [@neils_C]( With less than two weeks to go before the Federal Reserve’s monetary policy meeting, the market appears to be growing comfortable with the idea that the Fed will cut rates by 25 basis points. These expectations were solidified after data from the U.S. Bureau of Labor Statistics showed that the labor market is cooling, but not collapsing. [The August nonfarm payrolls report could be described as a mixed bag.]( The U.S. economy created 142,000 jobs, missing expectations of 164,000; at the same time, the unemployment rate dropped to 4.2% from 4.3%, and wages increased by 0.4%. It’s not surprising to see some gold investors taking profits off the table as expectations for aggressive easing are rolled back. [Some analysts had been warning investors that the market was looking a bit overextended above $2,550 an ounce, as a 50-basis-point cut always seemed unlikely.]( We also know that since 2009, seasonal factors show September is one of the worst months for gold. However, to take a page from Ralph Waldo Emerson: “It's not the destination, it's the journey.” Gold investors should focus more on the path of rate cuts rather than any single event. While the pace of rate cuts may be gradual, it could extend longer than expected. Heading into the weekend, markets are starting to price in the possibility that interest rates could fall below 3% by this time next year. It may take some time, but it's becoming evident that the economy is slowing, and real interest rates will trend lower—an ideal environment for gold. Gold could face some headwinds in the coming weeks; however, analysts aren’t rushing to call an end to the long-term rally. This week, analysts at Goldman Sachs made an interesting move by exiting a broad-basket commodity trade to focus on just two assets: oil and gold. “Given the current softening cyclical environment, we are tactically closing our 2024 Deficits Basket trading recommendation with a potential gain of 8% and focusing on our highest conviction views in the current environment, namely higher implied oil volatility, long gold, and short long-dated European gas,” the analysts said in a report. “Gold stands out as the commodity where we have the highest confidence in near-term upside.” The investment bank sees gold prices pushing to $2,700 in early 2025. [Meanwhile, precious metals analysts at Natixis, while not as bullish, expect gold prices to rise above $2,600 an ounce next year.]( [Callum Thomas, Founder of Topdown Charts, put gold’s 22% rally so far this year into perspective, saying that the breakout is a significant event.]( “We're very clearly now in a new uptrend, and the forces driving it are unlikely to go away anytime soon,” he said. While gold shows strong potential, the same cannot be said for silver. The other precious metal is not having a good week, as it has been unable to hold support above $28.50 an ounce. Gold is ending the week in relatively neutral territory, while silver is looking at a 3% loss. Looking ahead, [Mike McGlone, Senior Commodity Strategist at Bloomberg Intelligence, said he expects gold to continue outperforming silver.]( predicts the gold/silver ratio will push back to 100 as the threat of a recession looms over the U.S. economy. “Silver is part of the technology replacing fossil fuels (crude oil), but central banks are buying gold, and industrial demand and prices for the white metal may be more closely linked to stock market fluctuations,” McGlone said. Once again, [gold]( investors need a little patience, but sentiment suggests that this rally has plenty of room to run. Have a great weekend! Neils C. 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