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Gold price explosion fuelled by Fed rate cut looming

Gold's latest rally, triggered by expectations for U.S. interest rate cuts, fears about the independence of the Federal Reserve and healthy investor demand and central bank demand will likely propel prices to record levels in coming weeks.

Analysts expect spot gold to be in a range of $3,600 to $3,900 in the short to medium term. It could even reach $4,000 in 2026, if geopolitical and economic uncertainties continue.

According to polls, gold has gained over 33% this year. Analysts have raised their average price forecast for 2025 from $2,756 per ounce in January to $3065 in April and to $3220 most recently in July.

Financial markets have been betting on a rate cut in September after Fed Chair Jerome Powell acknowledged the rising risks of employment.

Ricardo Evangelista is a senior analyst at ActivTrades. He said that the dollar's bearish outlook, based on expectations of Fed cutbacks, investors' distancing themselves from U.S. investments, and tariff-related uncertainty, supports gold.

Since Donald Trump's return to the White House, in January, the dollar has dropped by nearly 11%. The dollar's weakness makes gold priced in greenbacks less expensive for those who hold other currencies.

Trump's criticisms of Powell, and his attempts to remove Lisa Cook as Governor have raised concerns about the Fed's independent and led to further gold purchases.

Carsten Menke, Julius Baer's analyst, said: "The wildcard that is most likely to cause a bullish move in the market... could be the potential interference of the U.S. Federal Reserve or concerns over the dollar as a safe haven."

Gold's appeal is also boosted by security concerns from the Middle East, between Russia and Ukraine, and demand from central banks in developing countries.

This includes China's central banks adding gold to their reserves for the ninth consecutive monthly in July.

World Gold Council data indicates that central banks are planning to increase their gold holdings in proportion to their reserves while reducing dollars reserves over the next 5 years.

Michael Hsueh is a precious metals analyst at Deutsche Bank. He said that the combination of rising gold prices and central bank accumulation has led to a sharp rise in gold reserves for some central banks.

Inflows into gold-backed ETFs are also significant. SPDR Gold Trust is the largest gold ETF in the world. Its holdings have risen to 977.68 tonnes, a 12% rise so far this season and their highest level since August 2022.

(source: Reuters)