Is the gold rally ending? No, this is just the beginning.

Bullion’s recent rally, driven primarily by the US Federal Reserve’s rate cut, has already resulted in a 4% rise. Despite this sharp increase, the refuge asset It appears to have more room for a prolonged uptrend. In fact, it appears the rally has only just begun.

In March 2024I suggested adding gold to your portfolio, citing a clear investment opportunityand since then, gold has appreciated a substantial 22%. However, current indicators suggest that the rally is far from over. In my view, gold is well positioned to continue rising in the coming months, supported by a combination of key macroeconomic factors and market dynamics.

What is driving gold’s continued growth?

Geopolitical tensions Increase demand for safe haven
Current global geopolitical tensions, particularly increasingly intense war scenarios, have brought gold’s safe haven appeal back to the fore. As geopolitical risks increase, markets tend to lean towards risk aversion, leading to greater demand for gold. Investors traditionally flock to gold as a hedge against uncertainty, and if the global war situation worsens, this could further amplify the demand for gold. Historically, these periods of geopolitical upheaval have coincided with an increase in gold pricesand now we are witnessing the development of a similar pattern.

The Federal Reserve’s path of rate cuts
The recent 50 basis point interest rate cut by the Federal Reserve has been a major catalyst for the gold rally. And with the central bank signaling a continuation of its dovish stance, we could see further rate cuts leading to a benchmark rate of 4.5% by the end of 2024. Lower interest rates reduce the opportunity cost of holding unprofitable assets like gold, making it more attractive to investors, especially during periods of economic uncertainty. This was evident in previous rate cut cycles.where gold outperformed benchmark indices like the Sensex in 2000, 2007 and 2019. If history is any guide, the current environment may provide another upside for gold, driven by monetary easing.

Increased capital inflows into gold ETFs

Another critical factor supporting gold’s rally is the growing inflow of gold-backed exchange-traded funds (ETFs). These financial instruments provide a convenient and liquid way for investors to gain exposure to gold. Only in August, global gold ETF added more than $2.1 billion, marking the fourth consecutive month of positive inflows. Institutional and retail investors are recognizing the strategic value of gold amid the current macroeconomic context. The attached chart will give you a clear view of the growing global flow of gold ETFs.

(Source: World Gold Council)

Central banks accumulate gold

Additionally, central banks’ gold purchases hit record levels in the first half of 2024, further underscoring the widespread shift toward safe haven assets. This growing demand for gold ETFs continues to put upward pressure on prices.

(Source: World Gold Council)

BRICS currency and de-dollarization will boost gold demand

The current efforts of the BRICS countries (Brazil, Russia, India, China and South Africa) to reduce dependence on the US dollar and develop their own BRICS currency for international trade. The BRICS currency will most likely derive its value from the underlying gold. Hence these countries are interested in accumulating their gold reserves, creating a demand deficit.

Data source: Tradingview

Indian investors should also consider the upcoming gold price momentum, particularly in light of seasonal demand. Historically, the festive season, which begins in October with Diwali and Dussehra, followed by the wedding season, has been a major driver of gold purchases in India. Given strong seasonal demand, this trend is likely to persist, adding further upward pressure on gold prices. MCX gold has shown a consistent trend over the past five years, with no negative closes in October, indicating a promising opportunity for investors.