Why gold could rise to $4,900 despite recent pullback.

Yahoo Finance

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Video Summary

Gold's Rally Pauses Amid Fed Signals, But Long-Term Outlook Remains Strong

The price of gold has seen a temporary slowdown following the Federal Reserve's recent 25-basis point interest rate cut. While this move initially pressured gold, Fed Chair Jerome Powell's indications against further December cuts have pushed yields higher, impacting gold prices. However, the underlying factors driving gold's ascent, such as substantial central bank purchases and unprecedented demand from ETFs and physical buyers, suggest a strong, secular uptrend persists. An interesting fact is that in Q3 of the current year, global gold demand reached its highest point in recorded history, with ETFs emerging as a significant new buyer.

Short Highlights

The Federal Reserve's 25 basis point rate cut, coupled with signals against a December move, has caused gold prices to pause, pushing yields higher.
Gold's earlier surge was driven by central banks becoming marginal buyers and record demand in Q3, with ETFs and physical bullion showing significant institutional and retail interest.
A potential recession could see gold retesting lower price points, like $3,800-$3,600, but institutional buying is expected to provide support.
Goldman Sachs forecasts gold to reach $4,900 by the end of next year, a view supported by the ongoing "currency debasement trade" and central banks owning more gold than Treasuries.
Silver is projected to hit $100 by the end of next year due to its robust industrial demand in solar, electrification, and potentially nuclear sectors, coupled with a current physical supply squeeze.

Key Details

Gold's Technical Pause and Macro Drivers [00:00]

The recent Fed rate cut and subsequent signals from Chair Jerome Powell have led to a technical pause in gold's rally, with higher yields pressuring prices.
The significant rise in gold prices earlier in the year was primarily driven by central banks increasing their purchases, making them the marginal buyers.
Q3 of the current year saw the highest recorded demand for gold, with ETFs emerging as a major new buyer, alongside substantial institutional and retail physical demand.
These structural, generational tailwinds for gold are considered long-term drivers, even as short-term technical corrections occur due to shifts in interest rate expectations.

The gold rally taking a breather here following the Fed's 25 point cut on Wednesday, but Fed share Jerome Pal signaling no December move in his post decision press conference.

Gold's Secular Rally and Potential Price Targets [01:18]

The current consolidation in gold prices is viewed as a pause within a broader, secular rally, with technical analysis guiding expectations for its trajectory.
Significant dip buying is observed below $4,000 an ounce, indicating underlying support for the precious metal.
A potential recession could lead gold to retest levels around $3,800 to $3,600, but institutional and central bank buying is expected to mitigate further declines.
Goldman Sachs' forecast of $4,900 for gold by the end of next year is considered highly likely, contingent on avoiding significant structural shifts like massive interest rate hikes.
Gold is positioned as a key component of the "currency debasement trade" and is reemerging as a favored alternative holding in traditional 60/40 portfolios.

Absolutely. So, the question now is all right, well, does this kind of a consolidation sideways? How does it trade down? If so, to what degree?

The Impact of Fed Policy and Inflation Concerns [02:38]

The Fed's rate cut provided a near-term negative impact on gold due to increased competition from interest-bearing assets.
Jerome Powell's concern appears to be more focused on inflation than on job numbers, making upcoming economic data crucial for gold's outlook.
The potential for the economy to slow down presents a risk that could weigh on gold prices in the short term.
Goldman Sachs is not only setting price targets but also recommending higher allocations to gold in 60/40 portfolios, signaling a mainstreaming of gold as an alternative asset.

Well, the the near-term impact is was is negative. You know, gold is competing for interest rates.

Geopolitical De-escalation and Gold's Safe Haven Appeal [03:39]

A de-escalation in US-China tensions could slightly reduce the safe haven bid for gold, though it wouldn't address broader fiscal and monetary deficits.
The market may be discounting current US-China posturing, similar to past instances where agreements were reached but not fully implemented.
While geopolitical shifts could potentially prolong the current consolidation in gold, intermediate and longer-term expectations remain bullish, with targets around $5,000 an ounce for the next year.

That that probably reduces the safe haven bid a little bit. Now again in the context of kind of broader demand it certainly doesn't do anything to address you know the kind of fiscal and monetary deficits.

Silver's Industrial Demand and Supply Squeeze [04:48]

Silver's price is being driven by its robust industrial use cases, particularly in solar energy and the broader electrification buildout, including nuclear power.
China's significant solar infrastructure plans are expected to increase demand for physical silver.
There is currently a shortage of physical silver, with more paper contracts than available physical metal, reminiscent of the situation in the 1980s.
This supply squeeze, combined with its role in the "currency debasement trade," positions silver for a multi-year, multi-decade uptrend, with a target of $100 by the end of next year.