Gold prices bounced back strongly in overnight trading, advancing roughly 2% and snapping a three-session losing streak, after a top Federal Reserve official signaled cooler expectations for interest rate hikes.
The rebound pushed bullion back toward the $4,500 per ounce level early in the Asian session on Friday. Earlier this week, the yellow metal had slid for three straight days to a near four-week low of about $4,282 per ounce. The catalyst came from Fed Governor Christopher Waller's remarks on Thursday, who said August inflation data would weigh heavily on his thinking. While he did not fully rule out supporting another rate increase if price pressures reignite, he indicated the recent data finally showed signs of cooling. Markets responded by slashing odds for a September hike, which fell to near 50% from as high as roughly 70% earlier in the week.
Gold, being an asset that pays no interest, tends to find support when rate expectations drift lower, as that diminishes the relative appeal of yield-bearing instruments. In the view of Tony Sycamore, senior market analyst at ING, Waller's speech broke the one-sided market positioning that had followed the hawkish tone from Fed Chair Warsh. The policy trajectory has now shifted back to a balanced approach guided by both employment and inflation data. Even if the services sector stays resilient, as long as the labor market keeps cooling, the room for further rate-hike expectations remains limited.
A softer US dollar also lent support to bullion. Beyond shifting rate expectations, the greenback's weakness partly stemmed from the yen, which jumped nearly 2% against the dollar on Thursday — its best one-day performance since the joint US-Japan intervention about a month ago. Market chatter suggested Japanese authorities may have conducted a rate check on banks, hinting at possible fresh intervention. Gold's path is also especially sensitive to developments in the Middle East. While an earlier escalation had lifted oil prices and stoked inflation worries, a recent easing in energy price pressures has helped calm the market. Sycamore added that with tensions appearing to subside, pressures on energy prices, US Treasury yields, and the dollar have all lessened, lifting risk appetite and bolstering gold.
Hong Kong-listed gold stocks opened sharply higher and extended gains on Friday morning.
Turning to the medium and longer term, Supriya Menon, a multi-asset fund manager at Wellington Investment Management, said, “We maintain a neutral stance on gold trading. Although structural support from central bank demand remains, the recent rangebound price action suggests a more balanced outlook. In the near term, we will continue to wait for more attractive entry points. But the decline in the dollar and the fall in US Treasury yields — signs of reduced appeal of dollar assets — provide medium- to long-term support for bullion.”
In an effort to reduce risk and prepare for crisis scenarios, the Dutch central bank on Thursday reported that it had moved roughly 86 tonnes of gold reserves from New York and Ottawa to London between March and August this year. The bank stated that gold held in London with the Bank of England is easier to trade, enabling faster deployment during a severe crisis. It added that it had shifted more than a quarter of its holdings in New York and Ottawa during that period. Separately, as reported by Chinese state media, the Bank of France announced in April that it had completed the repatriation of 129 tonnes of gold that had been stored in New York for decades. The bullion had been in custody there since the late 1920s. The operation, carried out in 26 phases between July 2025 and January 2026, involved selling the bars in New York at market prices while purchasing an equivalent volume of gold meeting current standards from Europe, which was then shipped back to Paris. That brought France's total gold reserves of 2,437 tonnes entirely back to domestic vaults. Germany, for its part, repatriated 300 tonnes of gold from the US between 2013 and 2017 and still keeps 1,236 tonnes in New York, about 37% of its total holdings, although political pressure to bring more of the metal home has mounted in recent years.
Sycamore acknowledged that gold's drop below its 200-day moving average of about $4,526 last week caused some short-term technical damage, but he argued that it does not alter the broader macro picture. The metal remains above the late-June low of $3,942, supporting his view that a bottom has been formed at that level.
In a recent report, UBS Wealth Management's Chief Investment Office stressed that gold's uptrend for the second half of the year is not over. “As investors reassess US monetary policy and the dollar's outlook, gold has broken out of its recent sideways range and moved higher again. The Fed's latest communication has brought uncertainty to short-term rate expectations. Softening US labor market data have also reinforced market expectations that the Fed may hold rates steady while inflation is under control,” the bank said. “Demand-side factors are also adding to gold's momentum. Gold exchange-traded funds (ETFs) have seen renewed net inflows, initially driven mainly by Chinese buying, with European buying gradually strengthening in recent weeks. At the same time, central bank gold purchases show no sign of slowing.”
The bank identified three conditions that should help gold extend its rally. First, the dollar must continue to weaken — UBS's base case is that the Fed will stay on hold in September, with uncertainty remaining over whether it hikes again this year. Second, market expectations for US real interest rates need to decline, as real rates are the nominal rate adjusted for inflation expectations. Since gold is a non-yielding asset, higher real rates raise the opportunity cost of holding it. While the correlation between real rates and gold is not always stable, it remains an important metric to watch. Third, gold's investment demand needs to strengthen further, and whether the recent improvement in ETF flows can be sustained remains to be seen.
“We maintain our year-end gold price target of $4,600 per ounce and forecast $5,400 per ounce by September 2027, which is $200 higher than our end-June 2027 objective. This is mainly because we believe slowing inflation will become the market's key theme next year, benefiting assets like gold that are constrained by rate-hike expectations. In addition, we anticipate US economic activity will be at or below trend levels — if that materializes, the dollar could come under further pressure, providing additional support for bullion demand,” UBS wrote in the report.
The bank also warned, however, that the primary risk to this positive outlook is a Fed rate hike this year, because higher rates would push up real yields, underpin the dollar, and dampen gold's investment appeal. In that scenario, prices could instead fall to $3,850 per ounce.
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