According to Daniel Ghali - commodity analyst at TD Securities, gold prices may face a significant correction following expectations of interest rate cuts by the US Federal Reserve (FED).
“Last Friday’s US non-farm payrolls (NFP) report marked the first challenge to the Fed’s rate cut path. The interest rate market has started to reprice the cut path, but gold prices have not been weighed down by liquidation yet,” said Ghali.
Gold prices held their comfort zone after the NFP release. Surprisingly, the market saw very little liquidation, Ghali said.
Last week, Ghali noted that the threat of a direct military confrontation between Iran and Israel has driven capital flows into gold as a safe haven despite waning demand in Asia.
However, on October 8, some media reported that a senior Hezbollah official had expressed support for the Lebanese authorities’ efforts towards a ceasefire. Market participants viewed the news as a cooling of tensions in the Middle East. Many people immediately sold, and the world gold price quickly plummeted.
In fact, even without geopolitical factors, Ghali has previously sounded a warning to precious metals optimists. In early September, he warned that the gold market appeared overbought and said that prices could fall to $200 or more per ounce.
When asked what price he would look to buy back gold, Ghali said: “We think a price close to $2,300 an ounce is reasonable.”
Despite the negative impact of information, gold prices still have many supporting factors in the long term. In a recent report, the World Gold Council (WGC) expressed its expectation that gold prices will continue to increase as the US Federal Reserve continues to cut interest rates.
“Gold has returned an average of 6% over the past six months. In a context of high stock-bond correlations, gold’s prospects offer investors diversification and a hedge against broader portfolio risks.
In addition, central bank buying, increased demand from key markets such as India, and the return of Western ETF investors will continue to support gold prices. 18.4 tonnes of gold (worth $1.4 billion) flowed into global gold-backed ETFs in September, marking the third consecutive month that the precious metal has attracted market-changing investment flows,” wrote analysts at the WGC.
