The gold price is pressured yesterday, falling below $1,930 an ounce, but analysts say new and old buyers have been driving the rally so far. They see more upside ahead despite this latest correction.
New and old gold buyers
According to Kitco, Standard Chartered analyst Suki Cooper said yesterday that the latest quarterly filings show that old and new gold buyers added significant allocations during the second quarter. She used buying data from exchange-traded products for her analysis.
Cooper said the second-quarter inflows were the second-strongest ever. She believes most of the inflows came from longer-term gold buyers. She added that 13F filings show that nearly 40 holders had over 3 tons of gold, which is more than at any other time.
The largest buyers of gold were those allocating to the precious metal for the first time, although some established buyers were also making big purchases. She said most of the gold buyers were longer-term holders, which is good for the long-term price outlook.
She said the top 15 holders of the SPDR® Gold Shares Trust (NYSE:GLD) made up 22% of the total outstanding shares. At the time of the last peak in 2012, the top 15 buyers held 45% of the outstanding shares. She said the data indicates how strong strategic inflows are and offers clues about the resilience of metal held in trust.
Choppy gold price action for buyers
She expects price action to remain "choppy" in the next few weeks. She noted that gold does still have a strong correlation with the U.S. dollar and real rates, but she added that recent positioning has been driven by weak longs rather than strategic longer-term allocation.
Cooper said gold is no longer technically overbought, and the longer-term picture for the yellow metal is still "constructive." Thus, she sees any corrections as buying opportunities. She expects the Economic Policy Symposium and the September Federal Open Market Committee meeting to drive the gold price.
Cooper believes both meetings will offset some of the market pessimism from last week's FOMC minutes. She believes market participants will mainly be watching for clues on the Federal Reserve's monetary policy regime in the coming weeks.
Jackson Hole to reignite gold prices
TD Securities strategists highlighted the upcoming Jackson Hole symposium as an event that should "reinvigorate" gold prices, according to Kitco. They expect Fed Chair Jerome Powell to essentially pre-announce the outcome from the Monetary Policy Framework Review.
The review suggests that the Fed formally adopt average inflation targeting. TD Securities strategists expect gold and silver to see some new buying interest as a result. They said precious metals should be supported by a chance in forward guidance to make it clear that the Fed wants inflation to move above the previous 2% goal to "as a make-up strategy."
Such an announcement wouldn't be any big surprise, but they believe the effects of such a policy might not be priced in fully yet. They said the formal announcement could also attract more buyers to gold and other precious metals, which have slowed significantly after the recent pullback.