By Linh Tran, Market Analyst at XS.com
Gold has just gone through a period of high volatility, reaching a new all-time high around $3,707/oz before retreating to the current level of around $3,650/oz. This rally reflected a combination of monetary easing expectations and increased safe-haven demand, but it also revealed short-term profit-taking pressure as prices quickly pulled back to a significantly lower level. This marks a phase where the gold market enters consolidation after a sharp rally, awaiting clearer macroeconomic signals to determine the next direction.
One of the key factors shaping gold’s outlook is the policy of the U.S. Federal Reserve (Fed). At its latest FOMC meeting, the Fed cut rates by 25 basis points, lowering the target range to 4.25% from 4.50%, marking a turning point after nearly nine months of holding steady. However, the important aspect lies in the accompanying message: the Fed acknowledged signs of weakness in the labor market, yet inflation remains persistent as August CPI rose 0.4% m/m, pushing CPI y/y to 2.9%. This forces the Fed to maintain a cautious stance, emphasizing a “data-dependent” approach rather than committing to an aggressive easing cycle. For gold, this creates a mixed impact: lower rates reduce the opportunity cost of holding the metal, but uncertainty about the pace of easing makes it harder for gold to sustain a decisive rally.
Beyond monetary policy, international capital flows continue to play a crucial role. In August, global gold ETFs saw net inflows of over $5.5 billion, bringing the year-to-date total to nearly $47 billion. This indicates that Western investors’ conviction in gold remains strong.
In India, one of the world’s largest gold-consuming markets, signals are even more encouraging. Domestic gold prices surged 7% in September, pushing year-to-date gains to 44% thanks to a combination of the global gold uptrend and a weaker rupee. Seasonal festive demand has begun to pick up, with gold imports in August reaching a nine-month high at around 60–65 tons, equivalent to $5.2 billion. At the same time, Indian gold ETFs saw strong inflows, lifting total AUM to roughly 70 tons. This provides a solid foundation for sustained physical demand in Asia, despite short-term price swings.
Meanwhile, official demand from central banks remains a long-term support pillar. The People’s Bank of China purchased an additional 1.9 tons in August, raising total reserves to around 2,302 tons, accounting for 7% of its foreign exchange reserves. This marked the 10th consecutive month of additions, reinforcing confidence that gold will continue to hold a strategic role amid global uncertainty. This trend has also extended to several emerging-market central banks, creating an important “buffer” against the risk of deep corrections.
Geopolitical factors cannot be overlooked. Russian drone incursions into NATO airspace, Israel’s ground offensive in Gaza City, and the potential EU snapback sanctions on Iran all act as catalysts for defensive demand. Whenever instability escalates, gold tends to benefit from its role as a non-risk refuge. However, this also means gold prices are likely to remain highly volatile, especially when unexpected news emerges.
In the short term, gold is likely to stay volatile but remain at elevated levels. The Fed’s 25 bps cut provides support, but it is not sufficient to confirm a fully-fledged easing cycle. Meanwhile, ETF inflows, India’s seasonal demand, and sustained central bank purchases continue to serve as underlying pillars. Over the longer term, gold’s outlook remains reinforced by global economic and geopolitical uncertainties, but in the near term, the metal may face technical corrections around its higher price ranges.