Source: Zhitong Finance and Economics.

Goldman Sachs reiterated its optimistic expectations for the price of gold, citing strong central bank demand and the upcoming interest rate cut at this week's Federal Reserve policy meeting.

On Tuesday, gold futures experienced a slight decline as investors withdrew from gold on the day before the Federal Reserve interest rate decision, evidently weighing the possibility of a 25 or 50 basis point rate cut by the Federal Reserve.

The nearby gold futures contract for September delivery on the New York Mercantile Exchange fell 0.6% to $2564.30 per ounce, just slightly below last Friday's record high of $2581.30. The nearby silver futures contract for September also fell 0.5% to $30.619 per ounce, ending a four-day consecutive rally.

CME's Fed watch tool shows that the market currently expects a 37% chance of a 25 basis point interest rate cut at this week's meeting, and a 63% chance of a 50 basis point cut.

Last week, this expectation boosted gold, as JPMorgan stated that within the week ending on September 13th, open interest in gold increased by 10.6%, largely driven by gold-supported capital inflows triggered by expectations of a Federal Reserve interest rate cut.

Analyst Priyanka Sachdeva from Phillip Nova stated that the outlook for gold is optimistic, but it may need new catalysts to further increase.

Goldman Sachs analysts stated that if the Federal Reserve chooses to only cut interest rates by 25 basis points, gold prices may face setbacks in the short term. However, with the help of increased funds inflow into gold-supported ETFs, gold will rebound to record levels.

Goldman Sachs analysts Lina Thomas and Daan Struyven said: "The Fed's interest rate cuts will attract Western capital back to gold ETFs, which is a fundamental part of the substantial increase in gold over the past two years." They reiterated the bank's forecast that gold prices will rise to $2700 per ounce at the beginning of next year.

Goldman Sachs added that despite the structural demand increase from major central banks having reset the relationship at the price level, interest rate changes continue to drive fluctuations in gold prices.

Compiled data shows that after falling to the lowest level since 2019 in May, the global holdings of gold ETFs have rebounded in recent months, but are still at lower levels since the beginning of the year, approximately 25% lower than the peak during the 2020 COVID-19 pandemic.

Editor / jayden