Gold Price: Time To Favour Yellow Metal In Upcoming Events Like Jackson Hole, US elections, Nvidia Earnings?

Gold prices have been broadly steady in August month so far. As per the World Gold Council, seasonality favours gold in August but with crosswinds from Jackson Hole, and the US elections, tech earnings are likely to be strong. On August 14, gold prices neared their all-time highs on the backdrop of lower dollar and treasury yields after U.S. producer price data once again increased hopes for a September rate cut by the Fed.

In the early August 14, spot gold is near $2,468 per ounce, which is close to its record high of $2,483.60 that was touched on July 17. So far, in 2024, yellow metal has rallied by 20%.

Meanwhile, in India, MCX gold futures with October expiry is above Rs 70,600 per 10 grams.

Going ahead in August, the WGC report stated that the month has typically been kind to gold, aided by weakness in bond yields. But seasonal tailwinds are up against powerful cross currents.

WGC highlighted these three currents:

1. Jackson 'Hope':

Jackson Hole hosts the 47th annual symposium (August 22-24) and comes just weeks before the first expected cut(s) by the Fed (September 18). Language will be key as will data leading up to the event. The 31 July FOMC meeting appeared to embolden that a cutting cycle will start in September. Confidence can also be derived from the fact that the Fed very rarely likes to surprise, outside of an exogenous shock.

For gold, WGC said that the symposium has - on average over the last decade - been followed by initial strength then a weakening a few weeks later as bond yields have tended to trend higher.

It further explained that current pricing leaves little room for disappointment. Following the weak August data prints, two cuts are now priced with almost 100% certainty, according to the CME. Speculative positioning in 2-year and 10-year Treasury futures are at multi-year highs. Equities have delivered a stellar expansion in valuations so far this year and we don't know whether the current pullback will be material. Gold net long positioning is not extreme, but it's reasonably high.

"It appears that the Fed has historically been reticent in delivering on expectations ahead of elections, perhaps in an attempt to ward off accusations of political interference," WGC said.

According, to the council advises that a small measure of caution is therefore warranted. If speeches at Jackson Hole hint that expectations are too dovish; equities, bonds and gold are at risk of a downward lurch.

2. US elections:

WGC observed that since President Biden stepped aside for Kamala Harris to carry the torch as the Democratic candidate, polls have dramatically tightened and some forecasts now favour a Democrat victory.

As per the council, the distinction between policies is not as clear as it has been historically. The fiscal largesse of which Democrats are normally accused is likely to be similar under a Trump administration. To boot, under Trump, materially higher tariffs, preference for a weaker US dollar and anti-immigration are some of the policies that present upside risks to inflation and downside risks to growth.

In WGC's view, gold is likely to benefit from uncertainty more than any political proclivity, and the running mate (VP) confirmation for Harris, is likely to further stir the pot. Post the election, the level of national debt and deficit will probably continue to concern investors and keep interest in gold high.

3. Tech Earnings:

Stocks have come under pressure recently. Q2 earnings for Nvidia, the AI darling and top performer of US equity markets will be released at the end of August and will cap some poor results from other sector leaders alongside the recent sell-off in other indices, as per WGC.

Moreover, WGC added, "While September is typically the seasonally weak period for US equities, August tends to be flat with lower volumes as traders head on holiday. So far this year, August appears to be the front-running September weakness. Gold's typically strong negative correlation during equity sell-offs should sustain investor interest and their capacity to respond will likely remain, given that positioning isn't stretched. So far it has done its job."

Apart from the above three factors. WGC also pointed out the latest customs duty cut by the Indian government.

In Budget 2024, Finance Minister Nirmala Sitharaman announced that BCD/AIDC on gold and silver bars is reduced to 5/1% from 10/5%. Hence, the total tax rate on gold (inc. 3% GST) will now be 9% vs. 18% earlier. Rate cuts came into effect immediately. Also, the holding period for the classification of gold (asset) held as either short-term or long-term has been reduced from 36 months to 24 months.

Further, the finance minister announced a reduction in customs duty on gold and silver to 6% and platinum to 6.4%. As per HDFC Securities, this will give a boost to jewellery consumption.

"August's seasonal strength in gold might be influenced by some specific events this month, including US election developments, the Jackson Hole Symposium and Nvidia's earnings call, even as the current equity rout is playing out in favour of gold. Our take is that these events will keep uncertainty high rather than providing any definitive resolution. The gold market might also get some support from Indian buying following the recent duty cut," WGC said.

Lastly, WGC added, "For gold, elevated uncertainty and event risk is likely to keep interest from investors high. So far, it has done a good job in protecting portfolios."