Despite its sizzling momentum, the ongoing gold rally is not a bubble as strong fundamentals and technical signals continue to support the market, says YLG Bullion and Futures, adding that a US$4,000 target remains in sight.
Bullion surged by 45% this year to reach $3,850 an ounce on Thursday, with domestic gold prices rising 39.6%, repeatedly setting all-time highs.
“Gold has entered overbought territory and may face bouts of selling pressure,” said Tipa Nawawattanasub, chief executive YLG. “But in the medium to long term, the uptrend remains intact, and prices could reach $4,000 an ounce.”
YLG highlights four key factors driving gold’s powerful rally. First, concerns over the independence of the US Federal Reserve (Fed) have cast doubt on the dollar’s long-term credibility, making gold an attractive hedge against political interference in monetary policy.
Second, expectations of Fed rate cuts have grown due to weak US labour market data, reinforcing the appeal of non-yielding assets such as gold.
Third, central banks continue to provide strong support to the market. Since 2022, they have collectively purchased more than 1,000 tonnes of gold annually, twice the average of the previous decade. Notably, China has been a consistent buyer for 10 straight months, boosting its reserves to more than 2,300 tonnes.
Finally, investor flows into gold-backed exchange-traded funds (ETFs) have resumed after two consecutive years of outflows. This year ETFs have accumulated nearly 588 tonnes, underscoring renewed confidence and strengthening the demand side of the market.
These four forces — monetary policy risks, rate cut expectations, sustained central bank buying, and a revival in ETF demand — have formed a solid foundation for gold’s continued ascent, Ms Tipa said.
In the short term, YLG views possible pullback “as a pause before climbing higher”. Breaking through resistance near $3,850 could pave the way toward the trader’s 2025 target of $4,000.
She said the gold rally has also been fuelled by temporary events, including heightened uncertainty around a potential US government shutdown, which historically shaves around 0.15% off quarterly GDP growth and disrupts employment figures.
For investors, YLG recommends futures trading as an attractive vehicle in a high-price environment as futures generally allow profit opportunities in both rising and falling markets.
“Despite short-term volatility, the foundations for gold remain rock solid,” said Ms Tipa. “This is not a bubble, but a structural uptrend driven by central banks, monetary policy shifts, and renewed investor demand.”