Gold's unprecedented rally reached new heights in September, recording the precious metal's largest quarterly gain in over 40 years. Despite potential near-term momentum slowdown, one market analyst believes gold prices still have room for further upward movement.
Aakash Doshi, Head of Gold Strategy at State Street Global Advisors, stated that with investment demand becoming a crucial factor supporting prices at historic highs, gold reaching $4000 per ounce is merely a question of timing.
This bullish outlook comes as gold prices traded around $3870 on Thursday.
Over the past three months, gold has surged nearly 17%, marking its best quarterly performance since the second quarter of 1982. Gold has also gained 47% year-to-date, representing its strongest rally since 1979.
September witnessed unprecedented investment demand for gold, with record capital inflows into the world's largest gold exchange-traded funds (ETFs). The SPDR Gold Trust (GLD), the world's largest gold ETF, added 35.2 tons of gold in September, with a single-day inflow of 18.9 tons on September 19th, setting a record for the largest increase on record.
Doshi noted that despite such demand levels, gold ETF holdings remain significantly below the peaks witnessed in 2020. He added that gold's breakthrough rally in August created some "fear of missing out" (FOMO) sentiment in the market.
"Throughout most of this rally, investors have been underallocated to gold," he said. "In January, GLD was still experiencing outflows. So from that perspective, despite the growth, gold is still not an overallocated asset."
Doshi expects investment demand to remain steady through year-end; however, he added that demand should moderate compared to September's pace. He explained that gold's exceptional rally occurred because investors are seeking hedges and protection against extraordinary market conditions.
"Given all the risks and structural factors, high gold prices are justified, and this price level is sustainable, but the daily volatility we're seeing is unsustainable," he said. "Gold reaching $4000 per ounce is a question of 'when,' not 'whether.'"
Looking ahead, Doshi stated that the Federal Reserve's new easing cycle is creating a "bull steepening" curve in the U.S. bond market, as short-term rates decline while long-term yields remain elevated. He added that this environment should continue to weaken the dollar, creating fresh momentum for gold.
Meanwhile, Doshi indicated that gold remains an attractive insurance strategy as declining rates support stock markets trading at historic valuations. Despite bullish equity momentum, he pointed out that the U.S. and global economies still face significant uncertainties. While recession risks remain low, the possibility of economic slowdown will continue to support gold's safe-haven appeal.
"The risk of recession or stagflation remains low, but higher than 12 months or even 6 months ago," he said.
The latest risk facing the U.S. economy is a government shutdown, as Congress has failed to pass any new budget legislation. Doshi said it's too early to determine what impact the 22nd U.S. government shutdown will have on gold and the economy.
"If it lasts more than a month, then I think you'll start to see negative growth consequences, which would be positive for gold. The longer this persists, the greater the risk of rating agencies further downgrading ratings," he said.
While Doshi views gold's rise to $4000 as inevitable, he doesn't expect gold to break directly upward. He believes gold's new support level will be at $3500 and expects buy-the-dip momentum to continue.
