Gold Prices Surge on Central Bank Demand and Weakening Dollar

The gold market has ended the week on a high note, with the front-month contract settling at $4,382.82 an ounce, representing a gain of 0.9% on the day.

This marks a recovery that has added 2.8% since the Federal Reserve's policy meeting last Wednesday, when it raised its benchmark rate by 25 basis points and signaled more tightening ahead.

However, two key factors have turned the tide: crude oil prices retreated, easing fears of persistent inflation, and the US dollar softened in tandem.

This shift has lifted both futures and spot demand for gold, as cheaper energy costs feed directly into inflation expectations, lowering the opportunity cost of holding a non-yielding asset like bullion.

Goldman Sachs remains bullish on gold, leaving its year-end 2027 price target unchanged at $5,400 an ounce. The bank attributes this to central banks, which have been buying roughly 91 tonnes of gold per month since the start of 2022, more than triple the pre-2022 norm.

Investment products have also reinforced the bid for gold, with physically backed ETFs attracting $18 billion globally in August, pushing total assets under management to $615 billion.