Gold: Upside risks building as fiscal worries grow – ING

ING Commodities Strategist Ewa Manthey points out that gold has climbed from around $4,000 per ounce in mid-July to $4,600, aided by increased investment demand, a weakened dollar, and worries over the US fiscal situation. She mentions growing ETF and central bank buying, but stresses that high US inflation and more rate hikes by the Fed are still major obstacles for gold.

Gold has returned to levels last seen in May. Manthey believes the rally is not only due to lower yields; the potential for bigger Treasury buybacks has brought attention back to government borrowing and fiscal trustworthiness. This has also heightened fears about currency devaluation, strengthening gold as a safe haven. A weaker dollar and lower short-term yields have also pushed gold higher after it found support near $4,000 in mid-July.

Lower US economic data have reignited hopes that the Fed may begin easing policies in 2027. Increased demand for ETFs is another positive sign. Gold-backed ETFs got $3 billion in July, raising their holdings by 23 tonnes, as per the World Gold Council. Central banks still contribute significantly to demand. Reported net purchases rose by 51 tonnes in June, bringing the first-half total to 102 tonnes, with Poland and China leading the buying.

It is expected that official-sector purchases will keep boosting the market, but future gains will rely more on whether Western investors maintain their renewed interest in gold. Our forecast for the fourth quarter (average price) stays at $4,150, assuming persistent inflation keeps US monetary policy tight and prevents a major drop in yields.

However, growing ETF buying, a weaker dollar, and mounting fiscal concerns are making the upside prospects for our outlook clearer.