TLDR:
- Gold prices retreated after recent highs due to easing geopolitical tensions
- Key support level for gold is at $2,600.07
- Goldman Sachs raised its gold price forecast for early 2025 to $2,900/oz
- Strong purchases by emerging market central banks are sustaining the gold rally
- Fed Chair Powell downplayed chances of significant interest rate cuts this year
Gold prices have seen fluctuations in recent days as geopolitical tensions ease and economic forecasts shift.
The precious metal, which had surged to record highs, is now experiencing a slight retreat as markets respond to various factors influencing its value.
On Wednesday, gold prices dipped by about 0.4%, trading around $2,650 per ounce. This follows a 1.1% increase on Tuesday, sparked by Iran’s missile strikes on Israel.
The conflict in the Middle East has been a significant driver of gold’s recent performance, with the metal often seen as a safe-haven asset during times of uncertainty.
Israeli President Benjamin Netanyahu’s vow to retaliate against Iran’s actions has kept markets on edge. However, as immediate fears subside, some investors are pulling back from their gold positions, leading to the current price retreat.
Despite this short-term dip, gold has seen an impressive rally of nearly 30% this year. This surge has been fueled by various factors, including anticipation of interest rate cuts by the Federal Reserve. The central bank initiated its cutting cycle last month with a 50-basis-point reduction, a move that typically supports gold prices.
Goldman Sachs has raised its gold price forecast for early 2025 to $2,900 per troy ounce, up from its previous estimate of $2,700. The investment bank cites two main reasons for this bullish outlook: expected faster declines in short-term interest rates in Western countries and China, and strong ongoing purchases by emerging market central banks.
Goldman Sachs analysts believe that the gold market has not yet fully priced in the impact of rate cuts on Western ETF holdings backed by physical gold. They expect this adjustment to occur gradually over time.
The bank’s nowcasting tool, which provides up-to-date monthly data, indicates that central bank and institutional demand for gold in the London over-the-counter market remains robust. As of July, purchases averaged 730 tons annually, representing about 15% of global annual production estimates.
China has been a notable contributor to this demand, with Goldman’s estimates aligning with those of the World Gold Council. The bank’s nowcast offers benefits such as monthly updates, country-specific transparency, and the use of customs data and institutional insights to refine its estimates.
However, recent comments from Federal Reserve Chair Jerome Powell have tempered expectations for significant interest rate cuts this year. Powell indicated that the Fed is likely to implement smaller, quarter-percentage-point rate cuts, emphasizing that the central bank is not “in a hurry” to lower rates.
This stance follows data that has bolstered optimism about economic growth and strong consumer spending.
For traders and investors, key support and resistance levels are worth watching. The immediate resistance for gold stands at $2,686.28, a level it briefly touched before retracing. A break above this could reignite bullish momentum. On the downside, key support is marked at $2,600.07, a level that buyers have successfully defended over the past week.
As markets await the next U.S. jobs report due Friday, which could offer insights into the Fed’s future rate decisions, gold prices are likely to remain sensitive to economic data and geopolitical developments. Traders are currently pricing in a one-in-three chance of another half-point rate reduction by the Fed in November.
