Gold price is losing steam, when will it bounce back?

The recent gold rally may be losing steam, but strong fundamentals will keep prices high in 2025 and beyond, said economist Diego Cacciapuoti at Oxford Economics.

In a recent report, Cacciapuoti noted that the gold rally has surpassed Oxford Economics’ previous forecast: “After forecasting a consolidation in December 2023, we have continued to forecast gold’s upside potential due to strong fundamentals in early July. We have reopened our long position in gold.”

However, Cacciapuoti warned, experts from Oxford Economics believe that gold prices are likely to fall in the near future.

“Interest rates continue to provide guidance on where gold prices are headed, even as the inverse relationship between gold and interest rates has eased recently due to increased safe-haven demand. Since April – when real interest rates peaked – lower yields have consistently supported gold once again.”

He noted that the negative correlation between real yields and gold stopped in the first half of 2024: “Investors focused on the worrying inflation outlook at that time. They bought gold to protect against rising risks as inflation could become more persistent in the long term. In addition, Chinese consumers were diverting savings from real estate and stocks into gold. These two factors, along with strong central bank buying, supported gold prices.

We believe that the recent decline in Treasury yields will be difficult to sustain in the near term. This support will fade for a while, allowing gold prices to consolidate in the near term.

“While we currently agree that the Fed will cut in November, we believe the Fed will not rush to cut rates by more than 25 basis points as the US economy is on track for a soft landing,” he wrote.

“Speculators may be losing interest in bullion,” Cacciapuoti said. “In fact, as the bullish momentum is showing signs of waning, we see gold prices stabilizing above $2,500 an ounce.”

Cacciapuoti believes that, once prices stabilize, the precious metal will recover and he maintains his strategic bullish view.

“Some of the biggest recent buyers, such as China, still have plenty of room to continue diversifying their reserves into gold. This is because China’s gold holdings represent a small proportion of its reserve assets compared to other economies.”

Traders are now in “pause mode,” awaiting a number of key US economic data including the FOMC meeting minutes on October 10 and inflation reports on Thursday and Friday.

September CPI is expected to have risen 2.3% year-on-year, compared with a 2.5% increase in the August report. Friday's PPI is expected to have increased 0.1% month-on-month.

Asian and European stock indexes were mixed overnight, with US stocks expected to open weaker when the New York session begins.

The major outside markets saw the US dollar index firmer today. Nymex crude oil prices were mostly steady, trading around $73.50 a barrel. The benchmark 10-year US Treasury yield is currently at 4.016%.