Gold prices have slipped to a one-month low following a 1.5% overnight decline, pressured by multi-decade high international treasury yields and a strengthening US dollar. The broader precious metals complex is also facing steep declines, with silver trading at a two-month low, platinum at a nine-week low, and palladium hitting a one-year low.
The downward pressure on dollar-denominated metals stems from the US 10-year treasury yield trading at 5.3% and the US dollar index climbing above 102. Surging international debt and soaring budget deficits in the US, France, and Japan are lifting borrowing costs, further weighing on the sector.
Market sentiment is also reacting to the latest Federal Open Market Committee (FOMC) minutes, which showed all 19 policymakers favoured a September rate hike. Markets are currently pricing in a 78% probability of another rate hike in December, compared to just a 20% chance for October. Inflation concerns remain elevated, driven by crude oil prices holding steadily above the $100 per barrel mark.
Gold started the year at $4,330 per ounce and reached an all-time high of $5,608 an ounce in January. However, profit-taking in June and July dragged prices below 4,000, resulting in a correction of nearly 26% from the peak. Currently holding around 4,100, the metal is down 4.5% year-to-date. This marks the first annual decline since a 3.5% drop in 2021, following consecutive years of positive returns.
Central bank buying, a major support for gold in recent years, is expected to moderate this year due to high prices. Purchases surged from an average of 450 tonne in 2020 and 2021 to 1,082 tonne in 2022 following the Russia-Ukraine war. Heavy buying by China kept volumes high at 1,037 tonne in 2023. In 2024, tariffs and a strengthening dollar led more countries to join in, pushing central bank purchases to a record 1,092 tonne. While last year saw volumes dip below 1,000 tonne, current elevated prices are expected to result in lesser buying this year.
Despite the near-term weakness and physical market redemptions, major brokerages maintain bullish long-term forecasts for 2027. JPMorgan holds the most aggressive target, projecting an all-time high of $6,300 an ounce by the fourth quarter of 2027. Goldman Sachs expects prices to reach 5,400, with an aggressive peak extension to 5,600.
Morgan Stanley forecasts a target of 5,000, citing support from global fiscal concerns and exchange-traded fund buying. UBS anticipates a level of 5,200 but warns that a correction to 3,850 is possible before prices reach that mark. Meanwhile, Metals Focus projects an average price of 5,330, and delegates at the recent London Bullion Market Association (LBMA) conference expect prices to hover around 5,100 next year.
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