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Gold rally continues, sets sights on $2,800 on rising demand

Yellow metal prices break $2,700 level for the first time as uncertainty looms

Gold rally is expected to continue its bull run and may breach another psychological barrier of 2,800 per ounce as geopolitical tensions, US election jitters and easing monetary policy boosted safe-haven demand, experts say.

Analysts and market experts are of the view that the yellow metal is likely to trade within the range of $2,500-$2,800 in the coming months amid high levels of geopolitical tensions especially in the Middle East.

“Gold is expected to trade within the range of $2,500-$2,800 in the coming months, as prices receive support from Fed's rate cuts and high levels of geopolitical tension,” according to BMI analysts.

On Friday, gold breached the $2,700-per-ounce barrier for the first time ever. Spot gold rose 0.5 per cent to $2,706.76 per ounce by at 6.20am (UAE time), adding nearly two per cent so far in the week. US gold futures also rose 0.5 per cent to $2,722.

Rising confidence in gold

Chris Weston, Head of Research at Pepperstone, said yet another day where the gold bulls head into the weekend feeling increased confidence in their position, “with big levels being broken — we can throw a raging US dollar at gold and it shows little interest — throw in higher real rates, lower crude and record equity highs, and again, gold grinds higher, seemingly impervious to these traditional negative forces”.

He said the big news on the day was the break of $2700 in spot gold, and while Europe may still see things differently and fade the rally “we’ve been treated to in Asia”, on the day the sellers have gone missing, where upon the break of $2700 broke it was one way buying into $2711.

“Gold futures played a part, and when the futures price smashed through $2712.70 (Thursday’s new all-time high) we saw huge volume kick in, suggesting a solid mix of stops triggered and momentum buying, which propelled futures higher, and in turn, this has dragged the spot market higher in sympathy. It’s hard to truly explain why the yellow metal is where it is, and we can all hazard a guess, but this is a hot market, and while we may not see crypto-like volatility and range expansion, to many with a lower risk tolerance, that is absolutely why they are swimming in these golden waters,” Weston said.

Growth drivers

In a recent report, the World Gold Council (WGC) said the drivers of gold buyers across various demand segments — jewellery and technology fabrication, central banks, financial investment, retail bars and coins — are crucially broader and more important than existing theories suggest. In addition, although financial market investors tend to dictate price formation in the short term, they are less dominant in the long term.

“We show that the gold price over long horizons is mainly driven by an economic component, proxied by global nominal GDP, coupled with a financial component, proxied by the capitalisation of global stock and bond markets, that balances the overall relationship. Third-party inputs are then used to estimate long-term expected returns for gold,” according to the WGC report.

Geopolitical tensions

Antonio Di Giacomo, Senior Market Analyst at XS.com said gold has reached new historical highs, experiencing a significant increase of over seven per cent and an impressive 30 per cent-plus price increase this year.

“This growth highlights the importance of gold as a safe-haven asset and signals substantial changes in the global economic landscape. The combination of dollar weakness, driven by Federal Reserve rate cuts, and rising geopolitical risks in the Middle East has been crucial in this ascent,” Di Giacomo said.

In a recent analysis, he said the increase in geopolitical risk in the Middle East has also influenced the rising demand for gold.

“Conflicts and instability in this region often lead investors to prefer tangible assets that can provide security. In times of tension, gold positions itself as a haven, increasing its demand and, consequently, its price. This pattern has been evident in recent market fluctuations.

“The recent gold surge reflects changes in the market and the quest for security in uncertain times. Dollar weakness and geopolitical risks have fuelled its demand, while the low-interest-rate environment offers a favourable context for its performance. As investors seek to diversify and protect their assets, gold is an essential refuge, promising a bright future in a challenging landscape,” Di Giacomo said.

Rally to continue

Shamlal Ahamed, Managing Director for International Operations at Malabar Gold & Diamonds, said gold prices in international markets are driven by several key factors, including economic uncertainty, central bank policies, geopolitical tensions, and other unpredictable factors.

“During these times, investors turn to gold as a safe-haven asset leading to increasing prices,” Ahamed told BTR in September.

Analysts and gold jewellers expect further increase in prices in the coming days due to persistent geopolitical tensions and low interest rate environment in the major economies. In a recent report, Citi experts said solid gold demand in the second half of the year could drive prices as high as $2,600 an ounce, with investors playing catch-up with the broader marketplace.

"We remain constructive on gold physical uptake over the next 12 months with a potential Fed cutting cycle and US labour market headwinds buttressing paper demand for the yellow metal," the Citi analysts wrote.

In this environment, the bank sees gold prices trading between $2,800 and $3,000 per ounce by mid-2025.

— muzaffarrizvi@khaleejtimes.com