Market News

A commodities expert says the price of gold, which hit a record high last week, is being propped up by a market wary of the outcomes of ongoing geopolitical tensions and the upcoming U.S. presidential election.

Daniel Ghali, senior commodity strategist with TD Securities, told BNN Bloomberg in a Monday interview that gold’s recent rally has been driven by many of the world’s biggest gold investors choosing to hold on to an “extreme” amount of the precious metal.

“What’s interesting about the ongoing rally in gold is really anywhere you look, you actually can’t find much evidence of substantial inflows heading into gold… elsewhere, physical markets have actually come to a standstill,” he said.

“So, I think what the gold market is actually telling us is that there is a lot of anxiety surrounding the upcoming U.S. election season. Perhaps it’s not a story of a substantial amount of inflows heading into gold, but rather a story that it takes a brave soul to sell gold (heading) into this specific election.”

Ghali added that geopolitical tensions in the Middle East and elsewhere have proven to be another driver of gold demand as investors treat the commodity as a safe place to allocate capital during times of uncertainty.

The U.S. Federal Reserve’s ongoing easing cycle also adds to gold’s bullish case, Ghali said, as the commodity tends to perform well historically during periods of interest rate cuts.

Ghali also said that central banks themselves, particularly in emerging markets, will continue to be significant gold buyers “for the foreseeable future,” but they may not be as eager to purchase the commodity as other investors in the near term.

“They don’t necessarily have a rush to buy gold in the same way that investors might have, and so… when it comes to gold prices, central banks are important to that story, but they’re not the entire story,” he said.

Ghali said that as the U.S. presidential election approaches, investors across the board will be bracing for increased volatility as current polling suggests it will be a close race.

“We can certainly expect a significant amount of volatility,” he said.

“A lot of that suggests that gold prices might trade higher on that uncertainty, and a big contingent of the speculative community that looks at gold isn’t going to be willing to sell gold in that environment.”