State Street Investment Management's Asia-Pacific gold strategist, Xu Zhijie, noted that following the U.S. midterm elections, gold prices rose from $3,900 per ounce to $4,130 per ounce. This rally reflects the market reassessing oil prices, inflation, interest rates, and the direction of the U.S. dollar.
The most critical driver is the notable decline in oil prices, reflecting reduced market expectations of further escalation in the Middle East situation. The drop in oil prices not only helps ease inflation concerns but also lowers market expectations that the Federal Reserve will need to maintain tight policy for a longer period. Consequently, falling U.S. Treasury yields and a weakening dollar both help reduce the opportunity cost of holding gold, providing support for gold prices.
Although cooling geopolitical tensions may weaken some safe-haven demand, at this stage, monetary policy still has a more significant impact on gold prices. State Street Investment Management indicates that the long-term factors supporting the post-pandemic gold cycle remain solid: (1) Global government debt levels are at historic highs, whether measured in absolute terms or as a share of global debt, while energy price inflation and war expenditures further exacerbate fiscal pressures; (2) With stock-bond correlations still at historic highs, market demand for liquid, risk-diversifying assets continues; (3) Global central bank gold purchases remain strong, growing 6% year-on-year in 2026; (4) Chinese retail investor buying reached record highs, up 67% year-on-year in 2026; and (5) Macro policy uncertainty related to trade and global geopolitics remains elevated.
The firm expects that even if gold price movements may not be smooth sailing, these structural factors will continue to support capital allocation to gold. Combining short-term and long-term factors for gold, the firm has adjusted its gold price forecast for the next 12 months. In the base case scenario (60% probability), the gold price range is $4,500 to $5,250 per ounce. The firm still believes that gold's next major $1,000-per-ounce move is more likely to be upward than downward, and is expected to occur in 2027. In the pessimistic scenario (35% probability), the gold price range is $3,750 to $4,500 per ounce. The firm believes that for long-term strategic investors, $3,800 to $4,100 per ounce will be an attractive entry point.
Comments