Volatility and Risk Events - How are Gold and Oil prices moving?

To say that the 2024 US presidential election circuit has been nothing short of unpredictable would be an understatement. Society has never been more divided on wide ranging topics from presidential candidates to economic policies. Hollywood stars and famous figures are also starting to take sides, staking their reputation and fans. With just 2 weeks to go, most opinion polls' margins are razor thin and by any indication, too close to call.

Heading into Q4 2024 has never been more turbulent. The world is facing two wars that are on-going with no end in sight. There is also an increase in geopolitical tensions between US and China. The incoming US president will be setting the tone for the next 4 years with effects reportedly being felt for the next decade at least.

One of the more contentious issues this election would be energy policies. The incoming president's stance on energy independence, climate goals, and relations with major oil producers will be critical. Whether it's reducing reliance on foreign energy, promoting green alternatives, or balancing fossil fuel interests, the policies adopted in the coming years will shape not only the U.S. economy but also its role in the global energy landscape."

Not just the US presidential elections, other major factors affecting energy prices would be the following:

Russia is one of the largest oil producers globally. Any efforts to try and sanction Russia or 'strongarm' her into stopping the war may always run the risk of a backfire. An example that we saw was back in 2022. Russia actually managed to cut gas supplies to the EU by 88%. Due to such a move, European countries were forced to look for other gas alternatives. And by doing so, they turned to countries like the US, Saudi Arabia and the UAE. This caused oil prices to surge strongly higher.

Further, as the war in the Middle-East escalates, affected countries are also major oil producers. Should Iran and Israel get into an 'all-out' conflict, we may see supply disruption happening in the oil markets. Should the conflict escalate further, we might see supply interruptions coming out from Iran. Such events tend to drive oil prices higher as well.

Since the start of 2024, gold prices have been closing higher consecutively, month on month. Along the same vein, while silver hasn't closed each consecutive month higher, it has, however, tracked gold prices and is also pushing a decade high.

Given the major risk events along with further rate cuts, the markets have been seeing safe haven demand continue to rise. During such times of geopolitical and economic uncertainty, it is no surprise that gold prices have surged by more than 30%.

As mentioned above, investors will see increased volatility for Q4 2024, due to the following risk events:

From a very basic point of view, gold, which is widely recognised as a traditional safe haven, will definitely stand to appreciate in value given the risks brought on by the above events. While the on-going wars are mainly confined to each specific region, fresh escalation could very well pull in more countries. When this happens, the risk of economic disruption rises (e.g. oil supply disruption, volatile stock markets).

At the same time, with further interest rate cuts on the horizon, the lower interest rates will reduce the opportunity cost of holding non-yielding assets like gold, making it more attractive to investors.

For the above reasons, it would make absolute sense for investors to allocate part of their portfolio to precious metals like gold going into the end of the year.

No matter the outcome of the US presidential election, one thing is for certain, the final quarter for 2024 is going to be exciting and also see an increased volatility. Investor or trader, there are multiple opportunities and the individual should definitely stay invested. Stay safe and trade safe my friends!

Isaac Lim CMT, CFTe
Chief Market Strategist

This report is provided for informational and general circulation purposes only and should not be construed as an offer, solicitation, or recommendation for the purchase or sale of securities, futures, or other investment products. It does not take into consideration any particular needs of any person. This advertisement has not been reviewed by the Monetary Authority of Singapore.