Gold Surges as Market Focus Shifts from Fed Rate Hikes to US Fiscal Credibility

Gold prices surged on Thursday after a sharp rebound from three days of losses. The precious metal rallied 2.5% to $4,368.91 per ounce in late London trade, with an intraday peak gain of 2.8%. Silver, platinum, and palladium also advanced.

The rebound was driven by easing Middle East oil supply disruptions and a pullback in U.S. Treasury yields, which cooled market inflation concerns. Gold ETFs saw inflows for eight consecutive trading sessions, reflecting rising bullish market sentiment.

Analysts at Oversea-Chinese Banking Corp noted that the retreat in U.S. Treasury yields has corrected previous excessive market rallies, delivering key support for gold prices. However, persistently elevated Treasury yields and dollar levels are set to cap gold's upward momentum and restrict its short-term gains.

Morton Wealth emphasized a fundamental shift in gold's long-term pricing logic, stating that U.S. fiscal deficits and unsustainable debt levels have replaced isolated Fed rate hikes as the core factor driving gold's market trend. The institution highlighted gold's role as a portfolio hedging tool rather than a yield-generating asset comparable to coupon-bearing U.S. Treasuries.

UBS delivered a differentiated outlook for gold across time horizons, acknowledging that the Fed's higher-for-longer interest rate stance will continue to pressure gold prices in the short term. In the long run, however, swelling U.S. fiscal deficits, mounting debt burdens, and expectations of Fed rate cuts next year are expected to support gold's upward trend.