Gold price outlook: analysing key drivers on the way to $3,000

Further Fed rate cut expectations and their impact on gold

Last week’s Federal Reserve's (Fed) bumper 50 basis point (bp) interest rate cuts have become a significant catalyst for gold's recent price surge. With expectations of an upcoming 25 bp rate reduction in November and another of the same magnitude in December, investors are increasingly turning to gold as a safe-haven asset. This shift is primarily due to declining US Treasury yields, which make non-yielding assets like gold more attractive.

Recent economic data from the United States presents a mixed picture, adding to the uncertainty that often drives gold prices higher. While manufacturing shows signs of weakness, the services sector demonstrates continued resilience, as evidenced by the latest S&P Global Flash Purchasing Managers' Indices (PMIs).

Fed officials, however, remain cautious about committing to aggressive rate cuts. They emphasise flexibility in their approach, acknowledging growing risks in the US labour market. This cautious stance has led to a more conservative path for rates, with analysts targeting Fed funds at 4.00% to 4.25% by December.

The most likely scenario is a 25 bp reduction in November, followed by another 25 bp cut in December. However, if economic conditions deteriorate, the Fed may need to consider more substantial 50 bp cuts, which could further boost the price of gold.

Geopolitical tensions and their effect on gold's safe-haven appeal

Escalating tensions between Israel and Hezbollah have significantly heightened gold's safe-haven appeal. As geopolitical uncertainties rise, investors often flock to gold as a hedge against potential market volatility and economic instability.

Several key geopolitical hotspots are currently contributing to market uncertainty. These include ongoing tensions in the Middle East, the ongoing conflict between Ukraine and Russia, and the complex relationship between the United States and China. Each of these situations has the potential to impact global markets and, consequently, drive demand for gold.

The upcoming US presidential election is another factor that could influence gold prices. Current polls show a tight race, with a slim lead for the challenger over the incumbent. Given that the outcome depends on the Electoral College rather than the popular vote, any surprises could prompt investors to seek the relative safety of gold.

These geopolitical factors, combined with economic uncertainties, make gold an attractive option for investors looking to diversify their portfolios and protect against potential market shocks.

US Treasury yields, central bank buying and gold ETFs

US 10-year Treasury yields recently traded at 18-month lows and remain on a downward trajectory towards the 3.0% mark from their current 3.77% level. Lower yields typically increase gold's appeal as a non-yielding asset, potentially driving prices higher.

The relationship between Treasury yields and gold prices is crucial for investors to understand. As yields fall, the opportunity cost of holding non-yielding assets like gold decreases, making the precious metal more attractive to investors seeking a store of value.

Central bank buying of gold remains close to recent highs and props up the gold price due to increased demand, with the Chinese central bank expected to make yet more purchases of the precious metal in the coming months.

Holdings of gold exchange-traded funds (ETFs), such as the SPDR Gold Trust, have seen significant increases since late June. While these holdings haven't yet reached previous peaks, improving ETF inflows could provide additional upside support for gold prices.

Technical analysis of the gold price

The gold price is in a long-term uptrend and is fast approaching the $2700.00 per troy ounce level, above which beckons the 261.8% Fibonacci extension of the September 2022 low to the May 2023 advance, projected higher from the October 2023 low, which comes in at $3005.71. The psychological $3000.00 mark and this technical level represent the next long-term upside target for the gold price.

Gold weekly candlestick chart

The long-term uptrend is deemed to be intact while the gold price trades above its $2483.74 to $2470.85 support zone. This zone consists of the July peak and late August and early September lows.

Gold daily candlestick chart

It's important to note that while technical analysis can provide valuable insights, it should be used in conjunction with fundamental analysis and an understanding of broader market conditions when making investment decisions.

The outlook for gold: potential scenarios and investment considerations

Given the current economic landscape and geopolitical tensions, the outlook for gold remains positive in the near term. Expectations of easing Fed policy, falling bond yields, and ongoing global uncertainties all signal potential upside for gold prices.

However, it's important to note that the precious metals market can be volatile and influenced by a wide range of factors. While current conditions seem favourable for gold, investors should be prepared for potential market shifts and unexpected events that could impact prices.

For those considering investing in gold, there are several options available. These include purchasing physical gold, investing in gold ETFs, or trading gold derivatives such as contract for differences (CFDs).

It's crucial to understand the risks and potential rewards associated with each method of gold investment before making any decisions.

How to invest in gold with IG

If you're considering investing in gold, IG offers several ways to gain exposure to this precious metal. Here's a step-by-step guide on how to get started:

1. Do your research: before investing, thoroughly understand the gold market, its drivers, and the various ways to invest. IG provides extensive educational resources to help you make informed decisions
2. Open an account: depending on your preferred investment method, you can open a share dealing account to buy gold ETFs, or a CFD trading account to trade gold derivatives
3. Choose your investment method: select whether you want to invest in gold ETFs, trade gold CFDs, or explore other gold-related products available on our platform
4. Use our platform: log into your IG account and use our advanced trading platform to search for gold or gold-related products
5. Place your trade: once you've decided on your investment amount and strategy, place your trade through our platform or mobile app.

Remember, while gold can be an attractive investment, it's important to consider your overall investment strategy and risk tolerance. Always diversify your portfolio and never invest more than you can afford to lose.

By following these steps and staying informed about market conditions, you can potentially benefit from the current gold price trends while managing your risk effectively.