Gold Floor Seen at $4,000 Amid Rate Expectations, $5,000 Target Still Possible

A report by Kitco News suggests that gold prices may be pulled back to around $4,000 an ounce due to expectations of higher interest rates and a sharp climb in bond yields. However, one strategist believes this level will serve as a floor for the metal, and with the right conditions, gold could hit $5,000 within six months.

Aakash Doshi, who leads gold strategy at State Street Investment Management, notes that bullion is facing notable tactical obstacles due to the anticipated more aggressive Federal Reserve and firmer U.S. dollar. Despite these risks, he points out a structural bid persists in the marketplace, driven by factors such as persistent inflation risks and geopolitical uncertainty.

The strategist attributes the rise in term premia - or long-term interest rates - to three key drivers: worries about institutional credibility, inflation concerns, and fiscal imbalances alongside greater Treasury supply. He also notes that physical and investment demand for gold remains strong, particularly from China, which saw a record 1,000 tonnes of non-monetary gold imports in the first seven months of this year.

State Street's September monthly gold report highlights that Western investors continue to allocate to gold as a hedge against macro-policy uncertainty and risks to fiat currencies. The report also notes positioning in the gold options market supports the case for higher prices, with longer-dated volatility skews remaining relatively bullish.