The rise in gold prices picked up pace last week, with gold hitting USD 2,135 an ounce this Monday – an all-time high. This uptrend was driven by the continued decline in long-term US yields and by further confirmation that disinflation is gaining ground in the States. The geopolitical uncertainty in the Middle East also seems to have helped to push up gold prices. However, the rally was very sharp, and we’re likely to see a consolidation in the short term, especially since sentiment indicators are extremely high. Provided gold can stay above USD 2,070 an ounce, gold prices should remain buoyant. Looking further out, the outlook is also promising. Central banks should keep buying gold as a way of diversifying their reserves, and few individual investors tapped into the recent uptrend – which should expand the list of potential buyers.
It took the S&P 500 just one month to make up for the losses recorded over the three months since its year-to-date highs in late July. In November, the index put in one of its best-ever monthly performances, gaining close to 9%. This year-end rally has been spurred by rising hopes that the US Federal Reserve (Fed) will loosen its monetary policy sharply in 2024. Just a few months ago, US stocks were being dragged down by the very restrictive tone coming from the Fed, which seemed to be ignoring the signs that inflation was returning to more normal levels – the Fed’s motto of “holding rates high for a long time” was weighing on US equities. But consumer price growth has quickly returned to normal since the end of the summer. This, coupled with the decline in economic indicators and a weaker jobs market, has convinced investors that Jerome Powell will have no choice but to cut interest rates. They now expect rates to be reduced by 130 bp in 2024, with an initial cut by May. These forecasts could turn out to be too aggressive, but they’ve still pushed US equities to new highs.
For that scenario to materialise, inflation needs to continue to ease – which we think it will – and the economy will have to keep gradually losing steam. So investors are likely to react well to any “bad” news about the US economy, as that will fuel expectations that monetary policy will be loosened. That was what we saw last Friday, when the ISM manufacturing index – one of the main gauges of economic activity in the country – fell short of economists’ expectations and dropped into contraction territory.
Sentiment indicators are currently at overly bullish levels, and equities seem to be overbought. However, they could still break through resistance levels if November inflation figures, set to be published on 12 December, force the Fed to line up with investors’ expectations and adopt a more dovish tone.
Switzerland is still in a period of disinflation, with consumer prices rising by just 1.4% year on year in November – the lowest level since 2021. With inflation under control, the Swiss National Bank will probably be one of the first central banks to begin loosening its monetary policy in 2024.