Fundamental Drivers in Gold Market
Investors looking to speculate in gold will need to be nimble as the fundamental drivers within the marketplace remain fairly nuanced. Although gold prices below $2,000 are slightly undervalued according to Quant Insight’s modelling, there is still little conviction in the marketplace. This continuation of the “wait-and-see” sentiment has been plaguing the precious metal in the last few months, as gold prices hold around $1,970 an ounce.
Interest Rate Volatility: The Main Driving Force
According to Quant Insights (QI), interest rate volatility is the biggest factor driving the broader financial market landscape, including gold. For gold prices to go higher, interest rate volatility has to ease. The macroeconomic outlook right now is inherently complex, with the Federal Reserve’s path at its terminal rates no longer a significant macro force in the broader landscape.
Supply Concerns and Growing Debt Levels Impacting Volatility
QI modeling finds that interest rate volatility is being driven by supply concerns and growing debt levels in a higher interest rate environment. At the start of the month, Congress managed to resolve its months-long debt ceiling crisis; however, the government now needs to issue more debt to refill its coffers. Some reports have said that the government will have to issue around $1 trillion in Treasures in the next few months.
Potential Risks and Gold’s Safe-Haven Allure
Although Quant Insight remains neutral on gold, there are potential risks events that could bring gold’s safe-haven allure back to the market. In the short-term gold remains sensitive to credit spreads, and if credit spreads start to widen because of economic fears, gold could attract some bullish attention. At the same time, QI modeling suggests that equity markets are becoming overvalued as market conditions turn neutral to negative.