Gold Prices Soar as Fiscal Concerns Mount and Dollar Weakens
Gold prices have rebounded significantly since mid-July, rising from around $4,000/oz to approximately $4,600/oz. According to Ewa Manthey, ING Commodities Strategist, this increase is supported by renewed investment demand, a weaker US Dollar, and growing concerns over the US fiscal outlook.
The recent uptrend in gold prices can be attributed to several factors. One of the primary drivers is the revival of ETF (exchange-traded fund) demand, with global gold-backed ETFs attracting $3 billion in July, resulting in a 23-tonne increase in holdings, according to the World Gold Council.
In addition to ETF demand, central banks remain a significant source of support for the market. In June, reported net purchases reached 51 tonnes, taking the first-half total to 102 tonnes, with Poland and China leading the buying. Ewa Manthey expects official-sector buying to continue supporting the market.
However, despite these positive signals, there are still headwinds that could impact gold prices. Persistent US inflation and potential further Federal Reserve (Fed) tightening remain key concerns for investors. The ING forecast suggests a $4,150/oz average price for the fourth quarter, assuming restrictive monetary policy and preventing a sustained fall in yields.