While none of these multiples gives us a complete picture, it would be safe to conclude that gold prices look relatively elevated now compared to other assets.

The Bullish Case for Gold Prices

That said, there are several bullish drivers for gold prices. In fact, the macro environment has never been as favorable for the yellow metal in recent years. Firstly, while the U.S. stock markets have been strong, there are fears about a bubble, and many investors are hedging their positions by investing in either digital assets or precious metals like gold, thereby bidding up their prices.

It's not only retail investors but also institutions and global central banks that are increasing their exposure to gold. Central banks have incidentally been on a gold-buying spree amid the de-dollarization drive and have been increasing the share of gold in their reserves at the cost of the greenback.

The massive increase in U.S. debt and the unsustainable fiscal deficit cost the world’s largest economy its top credit rating earlier this year, and while rising stock markets might mask the economy's precarious finances, they appear to be reflected in gold prices.

Then we have the fragile global geopolitical situation, which is leading to a pivot towards gold. Trade tensions, particularly between the U.S. and China, the world’s two largest economies in that order, are also increasing gold’s appeal given its status as a safe-haven asset. The continued U.S. government shutdown and fears of a recession/stagflation are only adding to the safe-haven demand.

High interest rates were a headwind for gold prices, but the Fed began its rate cuts in September and has indicated more cuts by the end of this year. Lower interest rates are theoretically positive for gold, which is a non-interest-bearing asset and therefore loses out to interest-bearing assets in periods of high interest rates.

I feel hard-pressed to think of factors that are negative for gold, beyond perhaps a de-escalation in trade and geopolitical tensions and a revival in the U.S. and global economy amid the near-synchronized monetary policy easing by global central banks.

That said, I am now in the camp that’s circumspect on gold’s short-term outlook following the recent rally and capitalized on the rally to book some profits. While prices might still rise from these levels, I find it more of a FOMO trade, which more often than not doesn't end well for those late to the party.

On the date of publication, Mohit Oberoi did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com