After breaking the $2800 milestone at the end of October, international gold prices experienced a brief adjustment.
COMEX gold futures for February delivery on the New York Mercantile Exchange surged nearly 1.5% during trading on the 11th, regaining the $2750 mark, as the latest inflation data reinforced expectations of interest rate cuts. Goldman Sachs predicts in a research report released this week that international gold prices will reach $3000 by the end of next year, and the strong dollar will give way to the Federal Reserve's interest rate cuts. At the same time, the outside world believes that central bank purchases, ETF inflows, and US fiscal security are also potential bullish factors.
Goldman Sachs: Strong US Dollar Will Not Stop Gold
As of the close, international gold prices have risen by nearly 25% since the beginning of this year, driven by factors such as geopolitical risks and the Federal Reserve's policy shift. According to data from the US Bureau of Labor Statistics, the Consumer Price Index (CPI) for November met expectations, strengthening the prospect of the Federal Reserve cutting interest rates next week and attracting capital inflows.
It is worth mentioning that gold experienced a correction after the US election, with the largest range drop exceeding 6%. The market is concerned that President elect Trump's policy proposals will once again bring about price risks, thereby suppressing the room for monetary policy easing. Trump's trading frenzy has driven the US dollar index and US bond yields to continue rising.
Goldman Sachs stated in its latest report released this week that although it expects the US dollar to continue rising, the rebound in gold may continue. We refute a common view that gold cannot further strengthen if the US dollar continues to strengthen for a longer period of time. It is expected that the gold price will mainly depend on the extent of the Federal Reserve's interest rate cut. If the Fed cuts interest rates by 125 basis points by the end of 2025, the gold price will rise by 7% to reach $3000
On the other hand, Daan Struyven, a commodity analyst at Goldman Sachs, believes that gold can also provide a safe haven during Trump's second term to hedge against the risks of increased tariffs and escalating trade tensions.
It should be noted that the premium of New York gold futures and spot prices has continued to expand since the beginning of this week. On the morning of the 11th in the London market, gold futures for February delivery were once $60/ounce higher than spot prices. Investors are weighing the possibility of including precious metals in the comprehensive tariff measures proposed by US President elect Trump.
This is all a preemptive panic deployment before tariffs, "said Nicky Shiels, head of metal strategy at trader MKS Pamp. She saw banks and funds buying New York Mercantile Exchange futures and selling contracts in London, which drove price fluctuations.
If market participants believe that there is a probability that tariffs will have an impact on imports of gold, silver, and copper, then it makes sense to cover any short EFP positions, "said John Reade, a strategist at the World Gold Council." Doing so may result in losses, but the potential costs of not doing so are enormous. If a 10% tariff is imposed, traders could lose nearly $300 per ounce of gold
Other favorable factors
For the market, the sustained structural driving factors for bullish views on gold include two points: increased demand from central banks around the world and a boost in funds flowing into gold ETFs (exchange traded funds).
The latest data released by the People's Bank of China this month shows that China's official gold reserve will be 72.96 million ounces by the end of November 2024, an increase of 160000 ounces from the end of October, which means that the People's Bank of China has increased its gold holdings for the first time in half a year.
The gold demand trend report released by the World Gold Council last month showed that the total global gold demand in the third quarter increased by 5% year-on-year, reaching 1313 tons and exceeding $100 billion for the first time. It is worth noting that the gold exchange traded fund ETF has become a "new force", with a net inflow of 95 tons in three months, marking the first time since early 2022. The World Gold Council has stated that if the Federal Reserve continues to cut interest rates, interest in ETFs should continue, subject to other conditions remaining unchanged.
Similar to Goldman Sachs, Max Layton, head of global commodity research at Citigroup, believes that gold prices will challenge $3000 per ounce in the next 6-12 months, which is a wealth reserve tool during periods of high economic uncertainty in the United States and Europe, thereby driving up ETF and investment demand.
On the other hand, the recent issue of the size of US Treasury bonds has once again attracted attention. The latest data shows that the overall debt of the United States has exceeded $36 trillion. Michael Armbructer, co-founder and managing partner of Altavist, said that gold is unlikely to reach its price ceiling soon. "The trend is upward, and the main driving factor for gold has not changed - uncontrolled federal spending ultimately forced the depreciation of the US dollar
Macquarie stated last week that due to the strengthening of the US dollar, gold may face difficulties in the first quarter of 2025, but it will expand its upward trend thereafter. If the policies of US President elect Trump worsen the US fiscal outlook, gold prices may soar to $3000 per ounce.