Gold set for worst quarter in over 10 years as retail interest cools
Gold is poised to enter its worst quarterly performance in over ten years, as retail investor enthusiasm fades and higher US interest rates loom, a far cry from last year’s continuous record-breaking prices.
The price of the precious metal fell below $4,000 per troy ounce on Wednesday, hitting $3,978.5.
On Tuesday it fell to $3,942.9, its lowest level since November, with prices down 14 per cent in the second quarter, which marked its worst quarterly performance since 2013.
This is a far cry from its near record high of $5,595 recorded in January, as investors began to cool on the asset amid heightened speculation that hawkish Federal Reserve chair Kevin Warsh could hike interest rates this year.
Analysts are now turning their attention to Warsh’s speech later today, where he is expected to signal a move towards hiking rates.
Gold usually suffers during periods of high borrowing costs, due to its status of a non-yielding asset, meaning it offers no income.
In response, assets such as bonds become more attractive in times of rising rates as “investors are lured” towards higher-yielding assets which can allow them to secure greater returns.
Susannah Streeter, chief investment strategist at Wealth Club, said: “Gold has lost yet more of its lustre, with the precious metal falling out of favour as investors are lured towards higher-yielding assets.
“A run of resilient US economic data has cemented expectations that the Federal Reserve still has scope to raise interest rates.
“Stronger jobs data and stubborn inflation have reinforced the view that rates are likely to stay higher for longer, pushing up Treasury yields and the dollar, while taking some of the shine off gold.”
“Dramatic rollercoaster ride”
Gold’s glittering two-year rally began to fade as the conflict in the Middle East caused oil prices to rocket and fanned expectations of higher inflation and interest rates.
This caused many investors to reduce their positions and cash in on gains made during the asset’s extended rally, with a number of products losing their shine.
According to the latest data from the World Gold Council, May’s net outflows of Gold ETFs, which reached $2bn, is set to persist, with June being the second consecutive month of outflows.
In the week ending 26 June, ETF outflows hit $4.7bn.
Away from the Fed, investors are also opting to dip into their gold reserves to invest in leading AI and tech stocks, as well as SpaceX’s blockbuster IPO.
Analysts anticipate this AI euphoria to continue rocking the gold market, as both Open AI and Anthropic prepare to go public.
Breaking point?
Industry figures are now questioning if gold can return to its previous highs, with the World Gold Council arguing that it would take another geopolitical shock or a reversal in interest-rate expectations in order to secure another market boom.
The latest report from the trade body said: “Financial market volatility and geopolitical risk generally contribute positively to gold’s performance.”
This was echoed by Patrick Munnelly, partner at Tickmill group, who argued “gold needs either a geopolitical shock or a growth scare to resume momentum.”
He said: “For now, it has neither.”
But the trade body noted expected headwinds, including the strengthening US dollar and investor risk sentiment, are likely to push gold prices lower going into the second half of the year.
Despite dwindling retail interest, central banks are choosing to maintain their reserves, but “questions have been raised about the pace of their purchases”.
The report said: “An increase in the number of central banks entering the market does not necessarily signal the magnitude of their purchases.”