Gold’s price rally will depend on sustained investment demand, Fed inflation response – ING’s Manthey
Gold prices are surging on the back of renewed investment demand and growing worry about the U.S. fiscal outlook, but sticky inflation and the prospect of Fed rate hikes mean the path higher is unlikely to be a straight one, according to Ewa Manthey, Commodities Strategist at ING.
In her latest analysis, Manthey said that fiscal risks have given gold fresh momentum, driving prices above $4,600 per ounce.
“The latest move followed the US Treasury’s decision to increase its purchases of longer-dated government debt,” she wrote. “The maximum size of buyback operations in the 10-to-30-year segment will rise from $2bn to at least $4bn, with Treasury Secretary Scott Bessent signalling that the programme could be expanded further.”
She noted that the impact on the bond market was short-lived, with long-term yields quickly making up most of their decline.
“Gold, however, continued to strengthen,” she said. “In our view, gold's resilience suggests that the rally is not simply a response to lower yields. The prospect of larger Treasury buybacks has refocused attention on government borrowing and fiscal credibility. It has also revived concerns about currency debasement, reinforcing gold's appeal as a store of value.”
Manthey said that renewed dollar weakness and lower short-term yields are contributing to gold’s rebound, while softer U.S. data are reviving expectations that the Fed could start lowering rates in 2027.
“The improvement in ETF demand is another positive signal,” she said. “Global gold-backed ETFs attracted $3bn in July, lifting their holdings by 23 tonnes, according to the World Gold Council.”
And July’s recovery has continued into August. “Funds tracked by Bloomberg added around 18 tonnes on Thursday alone, their strongest daily accumulation in almost a year,” she wrote.
Central bank demand has also remained strong throughout gold’s months-long consolidation.
“Reported net purchases reached 51 tonnes in June, taking the first-half total to 102 tonnes, with Poland and China leading the buying,” Manthey wrote. “We expect official-sector buying to continue supporting the market, but further gains will increasingly depend on whether Western investors maintain their renewed interest in gold.”
Gold’s nascent rally still faces headwinds, with inflation concerns chief among them.
“Rising energy prices are adding to US price pressures and could keep monetary policy restrictive for longer,” she said.
“Minutes from the Fed’s July meeting showed that some policymakers favoured an immediate rate increase, while others were prepared to support further tightening if inflation remained elevated.”
Manthey pointed to the Fed’s annual Jackson Hole symposium this week as a key focus for markets.
“Any indication that policymakers are becoming more willing to raise rates would risk lifting yields and the dollar,” she wrote. “A greater focus on growth or financial stability would be more supportive for gold.”
Manthey said the upside risk to ING’s late-year gold price outlook is rising.
“Our forecast of $4,150/oz for the fourth quarter (average price) assumes that persistent inflation keeps US monetary policy restrictive and prevents a sustained fall in yields,” she said. “However, renewed ETF buying, a weaker dollar and mounting fiscal concerns are creating increasingly clear upside risks to our outlook.”
“Gold’s correction appears to have found a floor,” she added. “Renewed ETF buying and its resilience despite elevated yields suggest the recovery is on firmer footing, but further gains will depend on whether investment demand continues to build and how the Fed responds to persistent inflation.”
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