February was a lackluster month for gold, with the price of the precious metal ending the month 0.3% lower at US$2,048 per ounce amid a rise in risk appetite.
The World Gold Council, in its February 2024 market commentary, attributed much of February’s weakness in gold to a rise in the US 10-year Treasury yield (+34bps), along with continued outperformance amid the AI frenzy from the “Magnificent Seven” stocks — Apple (NASDAQ:AAPL), Meta Platforms, Alphabet (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), Tesla (NASDAQ:TSLA), NVIDIA (NASDAQ:NVDA), and Amazon (NASDAQ:AMZN).
Geopolitical risk
Generally speaking, geopolitical risk seems to have a significant impact on gold prices. Anecdotally in 2023, gold holders — particularly in the Middle East and Europe — were less willing to give up their gold in the face of high prices and economic distress.
On that note, 2024 is peppered with political event risk as important elections line up in a more divisive world. Some of these elections have cross-border implications, increasing the overlap between politics and geopolitics — a fact that matters to investors.
One of those events is the Iranian parliamentary election in March which could pave the way for an important secession. Iran is a major buyer of gold and an OPEC+ member, so the WGC warns “the potential for a conflagration exists”.
Uncertainty reigns in monetary policy
The March Federal Reserve meeting is also important to gold investors and investors more widely. Following a slew of strong data, it will provide the first set of dot plots since the Fed’s dovish tilt in December. Even though markets have priced out a cut, the argument for is as vehement as the argument against.
Making a comeback
Gold has, however, staged a comeback in March, hitting consecutive new all-time highs and moving above US$2,150 per ounce. Rising rate cut bets are said to be behind gold’s strength this month — if inflation numbers remain tame, gold will continue to move higher. This could bring the return of bullish investors back to the gold market, while further support may come from strong Chinese demand.
According to the World Gold Council, “Gold’s strong bounce at the start of March has taken gold to new consecutive all-time highs. This suggests a market itching for a trigger, aided by recent strong reported Chinese demand, a quietly bullish sell-side gold forecasts and weaker US ISM numbers on 1 March.”