FxPro: Gold stuck between macro pressure and ETF demand

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Adverse macroeconomic conditions are weighing on gold.
Central banks and ETFs are providing support for the precious metal.

For two weeks running, gold has been unable to break out of the $4,050–4,200 per ounce trading range and is falling for the third day in a row ahead of the release of key US inflation data for September. High oil prices, Treasury bond yields and a strong dollar are putting pressure on the precious metal. At the same time, strong investment demand and central bank purchases of bullion are preventing it from collapsing.

According to Invesco, capital outflows from gold-focused ETFs in the first half of the year were replaced by inflows in the third quarter. Meanwhile, holdings in specialised exchange-traded funds rose to 12-month highs, and September was the strongest month since 2022. In the company’s view, this trend will support the price in the long term.

Conversely, Bank of America believes that capital flows into ETFs track prices. Therefore, a price decline will reduce holdings, further driving the sell-off. The bank forecasts a decline in the average price per ounce to $4,000 in the fourth quarter.

This is partly due to central banks’ waning interest in purchasing bullion. Kazakhstan provides a telling example. Gold accounted for 78% of its gold and foreign exchange reserves, but the central bank plans to reduce this to 75% by the end of the year, focusing instead on purchases of US dollar-denominated Treasuries amid rising yields.

Consequently, support for gold is becoming increasingly fragile. That said, the pressure on gold is also gradually easing. Markets are starting to realise that they had expected too much when forecasting three Fed rate rises over the next 12 months. John Williams, President of the highly influential Federal Reserve Bank of New York, said that rates may not rise in 2027. If so, Treasury bond yields risk falling, dragging the US dollar down with them.

The release of US inflation data and Kevin Warsh’s speech in Bangkok will serve as a litmus test for gold. Against the backdrop of accelerating CPI, hawkish rhetoric from the Fed Chair could push prices below $4,000. Conversely, if Williams maintains his dovish stance, it could provide a springboard for a rally above $4,200 per ounce.

The FxPro Analyst Team

Summary: Gold is caught between a strong dollar and high yields on the one hand, and demand from ETFs and central banks on the other. US inflation data will determine whether prices break out of the $4,050–4,200 range.

Fig. 1. The US Dollar Index and the price of a troy ounce of gold.
Fig. 2. Gold and the annual rate of consumer price inflation in the US.

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