Gold and Silver Prices Rise Amid Rate Cut Expectations

After three days of heavy selling, gold prices have experienced a notable rebound. Spot gold regained its footing above $4010 per ounce in European trading on Wednesday, posting a daily gain of nearly 1.5%. Similarly, spot silver reclaimed the $48 per ounce mark, rising by approximately 2.5% on the day. This upward movement is attributed to a resurgence of bargain-hunting, fueled by the prevailing expectation that the Federal Reserve will cut interest rates.

Impact of Federal Reserve Policy

The market widely anticipates a 25-basis point rate cut by the Federal Reserve. However, Fed Chairman Jerome Powell is unlikely to provide extensive forward guidance. For non-interest-bearing precious metals, lower borrowing costs typically enhance their appeal.

Price Correction Following Record Highs

Gold previously experienced a feverish rally, hitting a record high above $4380 per ounce last week before undergoing a significant correction. Technical indicators suggested that the previous rally was excessive and overly rapid. Furthermore, signals of progress in US-China trade negotiations led to a decrease in safe-haven demand, pushing gold prices lower.

Anticipated US-China Summit

China's Foreign Ministry spokesperson announced on Wednesday that Chinese President Xi Jinping will meet with US President Donald Trump in Busan, South Korea, on October 30 to discuss US-China relations and issues of mutual concern. Trump expressed optimism about the summit's prospects, telling reporters that he anticipates the meeting will yield "very good results for the United States and the world as a whole."

Drivers of Long-Term Appreciation

Despite the recent correction in gold prices, gold has risen approximately 50% this year. This surge is attributed to gold purchases by central banks and so-called "debasement trades" – where investors opt to steer clear of sovereign debt and currencies due to runaway fiscal deficits, instead allocating to gold.

Impact of Exchange Traded Fund (ETF) Flows

Previous gold price surges attracted institutional and retail investors to gold ETFs, but outflows this week have weakened some support. Bloomberg-compiled data indicates that investors net withdrew $1 billion from State Street’s SPDR Gold Trust on Monday, the largest daily outflow since April. Concurrently, total gold ETF holdings experienced their largest drop in six months.

Analyst Perspectives

"While near-term exuberance has clearly given way to consolidation, gold's role as a portfolio tool for hedging fiscal and policy uncertainty has not diminished," said Christopher Wong, foreign exchange strategist at OCBC Bank. "If gold prices can consolidate in the $3920-$4020 per ounce range, it may pave the way for another rally." At the London Bullion Market Association (LBMA) precious metals conference in Kyoto, Japan, this week, the sharp rise and recent correction in gold prices was a hot topic. The overall mood of the conference remained optimistic, with a survey of 106 participants showing they expect gold prices to approach $5000 per ounce in one year. HSBC believes that precious metals are experiencing just a temporary correction. The institution expects the gold price rally to continue into the new year, peaking in the first half of 2026. HSBC points out that key factors driving the rally include safe-haven inflows, expanding fiscal deficits, new threats to the Federal Reserve's independence, and pressure on overall US financial stability. In addition, the bank believes that strong inflows into ETFs and physical gold accounts will continue to support gold prices. However, looking ahead to the remainder of the year, HSBC says that if interest rate cuts by the Federal Reserve are smaller than expected, it could slow the rise in gold prices, but overall dollar weakness should support precious metal prices until early 2026. The bank expects gold prices to fluctuate between $3700 and $4050 this year, with a year-end target price of $3950. Next year, gold prices are expected to fluctuate between $3600 and $4400, peaking in the first half of 2026 and exceeding the $4400 level. The bank's price forecast for gold by the end of 2026 is $3800.