Rhona O’Connell examines Gold’s crosscurrents [Video]

On the Money Metals podcast, host Mike Maharrey spoke with Rhona O’Connell, StoneX’s head of market analysis for Europe, the Middle East, Africa, and Asia. O’Connell discussed the shifting U.S. political landscape, interest rates, debt, private credit, and the changing structure of Asia’s precious metals market.

O’Connell described StoneX as a global financial services company that began in Chicago in 1923, when founder F.C. Stone sold eggs door to door. The company now employs about 5,000 people, reports billions in revenue, and serves roughly 50,000 corporate clients and more than a quarter-million retail clients.

O’Connell’s career began in mining

O’Connell’s precious metals experience stretches back to the early 1980s, when she worked in corporate development at Consolidated Gold Fields, then the world’s second-largest gold producer behind Anglo. Her work included a 10-year silver-market outlook prepared in 1982 for a feasibility study and a later study of platinum-group metals.

After leading the GFMS team at Thomson Reuters, O’Connell joined StoneX in 2019 to build its London-based metals analysis team. StoneX covers precious and base metals alongside agricultural commodities, energy, foreign exchange, and other financial services.

Election uncertainty could weigh on the Dollar

The interview took place after a U.S. election that appeared likely to give Democrats a majority of at least four seats in the Senate and close to 100 seats in the House. O’Connell said the immediate market reaction included a weaker dollar and somewhat lower yields, as investors anticipated that fiscal stimulus could be constrained.

She said the dollar and interest rates could soften in the medium term, but the outlook depends on how effectively the new Congress acts. A smooth transition to workable policies could limit further dollar weakness. If lawmakers fail to establish a clear direction, uncertainty could return and put additional pressure on the dollar.

Inflation and the Fed remain key risks

O’Connell said the Federal Reserve’s decisions will depend on inflation, the labor market, and events in the Gulf. Unemployment was around 4.2%, which she described as close to full employment, while inflation had remained above the Fed’s 2% target for 67 consecutive months.

StoneX’s strategy team expected a rate increase in December and another in the first quarter. O’Connell also heard a somewhat more hawkish tone from Kevin Warsh at the October Fed press conference than in the prior two meetings. She said two more rate increases were possible, depending in part on energy prices and supply disruptions.

Even if Gulf tensions ease, O’Connell cautioned that oil prices and inflation may not fall immediately. Disruptions to crude, distillates, jet fuel, and other supply chains could take time to unwind. She also pointed to an approximately 2.5-percentage-point gap between CPI and PPI measures, warning that manufacturers and others in the supply chain may eventually pass some cost pressures to consumers.

“The lead time for inflation to be brought under control in the States is probably a good six months longer than some people think it is,” O’Connell said.

High yields could limit Gold’s gains

O’Connell described gold as caught between supportive and negative forces. A weaker dollar could help lift gold toward $4,200, but persistently high real bond yields could weigh on the metal. “If we’re looking at persistently high real bond yields,” she said, “that works against gold.”

At the start of the year, when gold was above $5,000, O’Connell warned that the market looked crowded and forecast $3,800 by year-end. During the interview, she characterized her outlook as neutral within a broad 3,800-to-4,500 range, reflecting the competing tailwinds and headwinds.

Maharrey raised the possibility of gold falling as low as $3,500 before recovering. O’Connell said a major economic shock could initially prompt distress selling, followed by renewed demand for gold: “You’d get distress selling first, and then it would pick up again.”

She cited an OECD warning at the September IMF and World Bank meetings that limited fiscal room had eroded governments’ ability to respond to future shocks.

Debt and private credit add to financial strains

O’Connell put U.S. government debt at about 123% of GDP, while Maharrey cited a national debt of roughly $40 trillion. She said the Fed’s room to maneuver is constrained by high debt levels across governments, corporations, and households.

She is also watching the growth of private credit. Investors may expect to withdraw money over a three- or six-month period, while private credit funds hold longer-term assets. O’Connell said some investors seeking withdrawals are being limited to about 5% of their holdings.

She compared the structure to risks that were overlooked before the 2007 subprime crisis, while stressing that she was not predicting another global financial crisis. Banks’ movement of credit into less-regulated areas, combined with maturity mismatches, concerns her. “I’m not comfortable with that at all,” she said.

Singapore and Hong Kong Vie for Asia’s bullion trade

O’Connell highlighted competition between Singapore and Hong Kong to become Asia’s leading precious metals hub. At the Asia Pacific Precious Metals Conference in Singapore in June, she heard concerns about fragmentation in the market and questions about China’s influence in Hong Kong.

She said the two hubs could bring complementary expertise and resources to the market if they cooperate. Asia has long been central to physical gold demand, making the efficient movement of metal important to the market’s liquidity and development. “It’s a question of expediting flows and not going for supremacy, but trying to make it holistic,” O’Connell said.

O’Connell also noted that the issue was appearing in specialist industry discussions, including at the London Bullion Market Association’s annual conference. She said it remains uncertain whether Singapore and Hong Kong will work together or compete for supremacy.