Five Forces Behind Gold’s Record-Breaking Run

Core Insights - Gold prices have recently exceeded $4,200, maintaining a strong uptrend despite a brief drop following the Israel-Hamas deal, driven by US monetary policy expectations and fiscal settings [1][3] Monetary Policy - The breakout in gold prices in September was primarily influenced by expectations of aggressive US Federal Reserve rate cuts due to a deteriorating US labor market, with Federal Funds Futures indicating a potential drop in interest rates below 3% next year [1] - The attempted firing of Federal Reserve governor Lisa Cook for alleged mortgage fraud has led to expectations of a more dovish Fed, with speculation that Jerome Powell may be replaced by a policy dove, resulting in lower policy rates [2] Fiscal Settings - October's gold price movements have been significantly influenced by global fiscal settings, particularly following the election of Sanae Takaichi in Japan, which has contributed to a "run it hot" trade amid recession-like fiscal deficits in the US, Japan, and Germany [3] - The US deficit-to-GDP ratio is projected to be near 6% next year, indicating very expansionary fiscal settings, compounded by central banks prioritizing employment over inflation concerns [4] De-Dollarisation Trend - US trade policy has accelerated the trend of de-Dollarisation, with central banks, particularly the People's Bank of China, increasing gold purchases to diversify away from the US Dollar, leading to sustained demand for gold [5] - Export economies that previously invested surpluses in US Treasuries are now directing funds into gold, indicating a shift in reserve management strategies [5] Geopolitical Risks - Geopolitical tensions, particularly in the Middle East and Eastern Europe, have increased demand for gold as institutions and wealthy individuals seek to protect their wealth from sanctions [6] - The recent peace deal between Israel and Hamas temporarily reduced gold prices due to a decrease in geopolitical risk premium, but this was quickly reversed by escalating trade tensions between the US and China [6]