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GOLD MAY BE LOSING ITS LUSTER

A seemingly unstoppable gold rally may be losing its momentum even as several factors are likely to continue to support the precious metal.

The Federal Reserve’s reluctance to cut rates is likely to weigh on the asset, said James Steel, chief precious metals analyst at HSBC.

“The apparent reluctance by the Fed to cut rates so far this year has the potential to at least curb the rally as gains earlier in the year were predicated on robust Fed cuts that have not materialized,” Steel wrote in a report.

At the same time, “our FX Strategy team expects that the USD may weaken further in 2H'25 which should support gold but possibly not propel it higher.”

Gold XAU= is around $3,340 per ounce on Tuesday, holding below its record $3,500 high reached in April.

Harry Colvin, strategist at Longview Economics notes that price action in gold has been poor in recent months as it fails to respond to its usual bullish drivers. These include the conflict in the Middle East and the weak U.S. dollar, which has fallen as interest rate traders bring forward Fed interest rate cut expectations.

“Typically, poor price action on bullish news is a sign of buyer exhaustion and evidence that long positioning has become crowded.” And as global central banks continue to cut rates, the global economy may see re-accelerating economic activity, which would create a challenging backdrop for gold, he said.

HSBC’s Steel adds that supply is expected to rise while high prices are eroding demand for jewelry and coins in key emerging and OECD markets. “This may be key in restraining rallies and undercutting prices,” he said.

On the upside, demand for gold bars is expected to rise on interest by institutional investors. And “mounting fiscal deficits in the US and other nations are encouraging gold demand and may be a key factor going forward. ETF investors have turned buyers. OTC, including real money, and momentum purchases remain strong.”

(Karen Brettell)

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