Gold prices are expected to remain elevated in the medium-term as trade tensions and geopolitical woes keep the safe-haven interest among investors.
Even as the US Federal Reserve’s hawkish tone at its last policy meeting weighed on the yellow metal, experts believe that gold prices could get a boost from trade-related developments.
“Gold price attracts some buyers for the second straight day, though it lacks bullish conviction and remains confined in the previous day’s broader range through the Asian session on Friday,” Haresh Menghani, editor at FXstreet said in a note.
At the time of writing, the most-active December gold contract on COMEX was at $3,345.62 per ounce, down 0.1% from the previous close.
Fed’s hawkish tone weighs on prices
Following the US Fed meeting on Wednesday, the price of gold continued its decline, briefly falling well below $3,300 per troy ounce.
In the press conference, Fed Chair Jerome Powell’s hawkish stance was far more pronounced than anticipated, proving to be the decisive element.
This diverged from the initial statement, which had omitted any mention of strong prior economic growth, instead highlighting a deceleration in growth during the first half of the year.
Powell, however, did not use this occasion to signal an imminent interest rate reduction to the market.
Source: FXstreet
He would not answer questions on whether the conditions for such a move might be fulfilled at the upcoming September meeting.
“Powell thus gave the impression that everything was still open,” Thu Lan Nguyen, head of FX and commodities research at Commerzbank AG, said in a note.
The two FOMC members who had already voted for a rate cut at the meeting suggest that rate cuts are coming closer though.
Political pressure
Even though the Fed’s latest meeting did not yield any narrative around interest rate cuts, political pressure in the US may lead to reductions soon, according to Commerzbank.
US President Trump had been very vocal about interest rate reductions in the country, and had also targeted Fed Chair Powell before.
Despite a potential delay in a September rate cut by the Fed, the long-term outlook points towards aggressive rate reductions, which augurs well for non-yielding metals such as gold and silver.
This is primarily due to the high probability of a Trump-aligned successor taking over after Powell’s term concludes.
Such a change in leadership is anticipated to usher in a period of more proactive monetary easing, significantly impacting economic policy and market conditions, Commerzbank Nguyen said.
Nguyen added:
Postponed does not mean canceled. We therefore continue to see medium-term upward potential for gold.
Gold demand
Gold demand increased by approximately 3% in the second quarter, reaching just under 1,250 tons, according to data released by the World Gold Council.
This is remarkable, especially considering the price of gold increased by over 40% compared to the same quarter last year. When excluding the “OTC and other” residual category, the increase was an even more significant 10.4%.
This was mainly due to a strong 78% increase in investment demand, primarily driven by continued strong inflows in exchange-traded funds (ETFs).
Demand for investment outstripped the typically higher demand for jewelry.
Increased demand for gold as a safe haven led to a 14% drop in jewelry demand compared to the previous year, primarily due to high prices.
Central bank gold purchases have decreased by 21% year-on-year, reaching their lowest point in three years, indicating a slowdown in this trend.
The first half of the year mirrored this trend, with investment demand surging to almost 1,030 tons—more than double the previous year. This growth was fueled by significant ETF inflows and strong purchases of bullion and coins.
WGC anticipates a notable increase in investment demand for the entire year compared to last year.
However, they foresee a decline in fabrication demand, encompassing jewelry and technology, as well as reduced gold purchases by central banks.
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