Is Gold set to rebound to $5,000?
- Gold is benefiting from the weakness of the US dollar, despite rising Treasury yields.
- Gold-focused ETFs are attracting billions of Dollars.
The US dollar has recouped almost half of the losses incurred due to the Treasury’s plans to intervene in the bond market to control yields. Investors are sceptical about the scale and effectiveness of such measures, which is restoring confidence in the greenback. Inflation data has provided further support. In July, the Personal Consumption Expenditure Price Index (PCE) rose by 3.7% y/y, while the core PCE stood at 3.3% y/y. Both indicators have been significantly above the 2% target for a long time. After such numbers, derivatives have priced in a 40% chance of a Fed rate hike in September.
Renewed pressure from the White House on the Fed, in the form of fresh attempts by the administration to remove Lisa Cook from her post as FOMC governor, telephone conversations between Donald Trump and Kevin Warsh, and the Treasury’s recent intention to use non-market methods to rein in Treasury yields, are eroding confidence in the US dollar and triggering the so-called ‘debasement trade’. This is when investors move away from currencies and bonds in favour of assets such as precious metals and cryptocurrencies.
It is hardly surprising that, over the past five days, gold- and Bitcoin-focused ETFs have attracted around $7 billion. $3.4 billion, or almost half of this inflow, went into State Street Investment Management’s SPDR Gold Shares ETF. The precious metal is capitalising on the US dollar’s inability to benefit from high Treasury yields and is performing strongly.
Natixis has raised its gold price forecast for the end of 2026 from $4,600 to $5,000 per ounce. The firm points out that the metal rally began even before the Treasury announced an increase in the minimum volume of long-term bond purchases. The upward movement was driven by a series of disappointing reports on the state of the US economy, which shifted the futures market's outlook. Previously, the derivatives market had anticipated two rounds of monetary tightening; now it doubts even one.
TD Securities notes that precious metals are settling comfortably into new, higher trading ranges, but warns against euphoria over a rally to record highs. The argument is that the conditions for this have not yet matured. Evidence of this is the price pullback ahead of Kevin Warsh’s speech at Jackson Hole.
Summary: Gold is surging to new highs against the backdrop of a ‘debasement trade’: a weak dollar, inflation above the Fed’s target and record inflows into gold ETFs are fuelling the rally towards $5,000.
Author
Alexander Kuptsikevich, a senior market analyst at FxPro, has been with the company since its foundation. From time to time, he gives commentaries on radio and television. He publishes in major economic and socio-political media.
