On Monday, Ghali stated that despite some drivers in the gold market undergoing changes, there is still significant room for growth in allocations, and geopolitical uncertainties in the U.S. and abroad will lay a solid foundation for record prices.
Ghali said, "From a medium-term perspective, what's interesting about the sustained rise in gold prices is that no matter where you look, there's no evidence of a large inflow of funds into gold. According to our analysis, some of the largest gold investors hold an extreme amount of gold relative to historical levels. Elsewhere, the physical market has essentially come to a standstill."
He added, "Perhaps this is not a story of a large inflow of funds into gold, but rather one that requires a brave soul to sell gold in this particular election."
Ghali also believes that market participants are unwilling to sell gold amidst such a strong upward momentum, and pointed out that there are multiple factors supporting gold prices at record highs.
Ghali said, "There are many reasons to buy gold; geopolitical uncertainties, especially in the Middle East, may have reached their highest levels since the Gulf War. The Federal Reserve has just entered an easing cycle... It needs to be clear that historically, this has been associated with good returns for gold over several months, but at the same time, there is a lot of evidence that investors have actually gotten ahead of all this and have already prepared for the future."
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Ghali stated that central banks have been a key factor in the record rise of gold prices, but the strength of this trend is currently sparking intense debate.
He said, "According to official data, the six-month moving average of central bank buying activity has actually approached a five-year low, so many of the stories you hear in the gold market are constantly changing. However, we are not seeing the selling activity you would typically expect."
Ghali said, "I believe that in the foreseeable future, central banks will buy gold. Emerging market central banks currently hold insufficient gold, so there is a long way to go to reach levels comparable to the West. That being said, this is actually a structural shift that began at some point in 2019. In fact, they are not necessarily as eager to buy gold as investors are."
Ghali stated, "I think that when it comes to gold prices, central banks are important to the story, but they are not the whole story."
He said, "We can certainly expect significant market volatility. Many signs indicate that gold prices may rise under the influence of this uncertainty. Of course, in this environment, a significant portion of the speculative community that pays attention to gold will not be willing to sell gold. Therefore, even though other factors may be moving in this direction, whether Trump's election as president implies imminent higher inflation and whether the outlook for the Federal Reserve will be reconsidered as a result," this will delay these sales.
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