Gold Is Set for Another Rally

Gold prices are down by 0.5% to $2,645 per troy ounce, retreating from the all-time high of $2,685. However, the upward trend may not be over yet, as gold broke through the resistance at $2,490–2,510 per ounce in September, clearing the way for a primary target of $2,700–2,800 and potentially extreme targets of $3,200–3,300 per ounce. This rally could extend until the end of November, driven largely by the Federal Reserve’s (Fed) unexpected half-point interest rate cut in September.

The last time the Fed made such a bold move was in August 2007, which triggered a 59.0% increase in gold prices over the next six months. If we draw parallels to the current situation, gold could surge to an astonishing $4,100–4,200 per ounce by mid-March. However, as with 2007, such a steep rise might seem unrealistic, making a target of $3,200–3,300 more reasonable.

Fed Chair Jerome Powell has since attempted to cool the market, stating that the Federal Open Market Committee (FOMC) is not planning another aggressive half-point rate cut like the one in September. As a result, investor expectations for a half-point cut in November have dropped to 35.3% from 53.3%, according to the FedWatch Tool, and gold prices corrected by 0.9% to $2,634 per ounce.

Despite this correction, Iran's strike on Israel earlier in the week pushed gold prices back up by 1.1% to $2,663 per ounce. Although the minor casualties in Israel have led investors to believe that further escalation is unlikely, large investors remain cautious. The SPDR Gold Trust (GLD) saw net outflows of $297.2 million last week, the first negative week in the past thirteen. However, the early days of this week have seen net inflows of $243.0 million, reflecting uncertainty over Israel's response, especially as its military has launched a ground operation in southern Lebanon.

Gold is currently holding support at $2,640–2,670 per ounce. If this level holds, prices could rise to $2,700–2,800. The U.S. labour market report due on Friday will likely influence the market, and if gold doesn't rally above support before the Nonfarm Payrolls are released, a further retreat to $2,580 can't be ruled out.