Gold Price Spikes to All-Time High to Start December
The gold spot price surged to a new record high overnight on Monday, albeit only briefly. For the first time ever, gold traded above $2,100 per ounce in terms of U.S. dollars.
Although the yellow metal subsequently sold off later in the day, this price action suggests gold has indeed entered a new secular bull market.
The gold price was already on track to reach unprecedented heights during trading hours on Friday, December 1. Spot gold notched a new intraday all-time high above $2,070/oz while gold futures approached records near $2,090/oz.
The upward trend continued following the weekend. When trading re-opened on Monday, the gold futures price hit another intraday record above $2,150/oz.
At the same time, the price of Bitcoin also jumped above $41,000, its highest in about 20 months. This perhaps signals greater investor demand for alternative assets in general.
Why Gold Hit All-Time Highs
There are a number of reasons that explain why gold has skyrocketed in the closing weeks of 2023. There is the resumption of war in Gaza, which undoubtedly has caused safe haven flows into gold. There is also the strong possibility that a short squeeze occurred during market hours in Asia overnight. This is particularly likely given that China and the East now exert greater influence over price discovery in the gold market.
Moreover there's evidence in the most recent Commitment of Traders report that the big money management firms on Wall Street piled into long positions, presumably because they were caught offsides on the trade.
Beyond all of this, I believe the main reason for gold's rise is the recent spate of dovish comments by members of the Federal Reserve Open Market Committee (FOMC). One of the Fed's governors, Christopher Waller, expressed his expectation that the central bank may be finished hiking interest rates.
The impact of this potential pivot in policy outlook has already been dramatic. Waller's comments caused a significant shift in the timeline that markets are assigning to possible rate cuts by the Federal Reserve in 2024. Lower interest rates would be a positive development for gold, hence the gold rally to begin the month.
Even a rather hawkish speech by Fed Chair Jerome Powell in the aftermath didn't help sway market expectations regarding rates. (In fact, probabilities of a rate cut in 2024 actually rose following Powell's comments—comments which were clearly intended to pour cold water on the idea that lower rates were imminent.)
Relatedly there was a fair amount of better-than-expected data on the economy reported during November. This has some bearing on the future path for interest rates insofar as the Fed interprets core PCE inflation falling toward 3% as reason enough to pursue less restrictive monetary policy. Ironically, good economic news is not necessarily bad news for gold.
Why Gold Fell Sharply
The gold market didn't spend very much time at these record-high prices before dropping. By Monday afternoon on December 4, gold tumbled 2% lower back to about $2,025/oz. The price of silver likewise fell sharply during the early hours of trading in the United States.
Gold's price movement Friday, Dec. 1–Monday, Dec. 4 falling from record highs. Chart via Kitco.com
Some of the causes were of the mundane kind in key outside markets. Crude oil prices fell, bond yields rose, and the U.S. dollar index was higher. Those are usually, though not always, negatively correlated to the gold price.
Gold Prices Need a Breather
In my decades-long experience in the precious metals industry, this rapid pullback for gold was in line with an exceedingly common dynamic. In some sense it's merely a regression to the mean. Major selling pressure following a rally is simply par for the course when it comes to the gold trade. It comes as no surprise to any seasoned observer of gold that prices would soon re-test support at $2,000 after hitting record intraday highs.
Many goldbugs also subscribe to the notion of "Mr. Slammy"—a cheeky nickname for the pattern of gold rallies routinely being snuffed out by large volumes of trades by bullion banks at the opening bell of the trading session in order to exert downward pressure on the gold price.
Regardless of whomever or whatever you attribute it to, the phenomenon is real and observable. This "slam" or smackdown frequently happens at the open of trading in the West after gold has closed in the green in Asian markets.
That aside, it makes sense for a great deal of profit-taking in gold to occur following a spike to record highs. That's typically true of any market environment functioning normally. (It remains to be seen how volatile metals prices will get in 2024 within that framework of "normal" market behavior.)
Gold prices are now poised to test key technical levels between $2,000 and $2,100 an ounce as we head into the winter holidays. It appears that $2,000/oz will hold as support beneath prices for the time being.
It's also worth noting as we look ahead to year-end that gold has enjoyed a "Santa Claus rally" each of the past six Decembers going back to 2017. There is often positive seasonality for gold in the fourth quarter and first quarter most years, which is balanced by poor seasonality during the summer months.
Read more about the gold market from the experts at Gainesville Coins:
Everett has been the head content writer and market analyst at Gainesville Coins since 2013. He has a background in History and is deeply interested in how gold and silver have historically fit into the financial system.