Last week, the long-awaited rate cut by the Federal Reserve finally materialized, providing additional boost for the relentless rise in gold prices, but some analysts are starting to doubt whether potential buyers may start to dry up.

FxPro's Senior Market Analyst Alex Kuptsikevich stated in a report that even with the strengthening of U.S. Treasury yields and the U.S. Dollar last Friday, gold futures continued to rise. This could be a sign that remaining short positions in the market are being forced to close.

The most active gold futures contract on Comex rose $31.60, or 1.2%, to close at a record $2646.20 last Friday. The price of gold has risen by 27.7% so far this year and by 36% in the past 12 months.

Kuptsikevich wrote: "The U.S. Dollar against a basket of major currencies usually holds its ground, and rising bond yields create an unfavorable environment for gold, but the forced closure of short positions may push the price of gold to historic highs."

The appreciation of the U.S. Dollar typically weighs on gold and other commodities priced in dollars because it makes them more expensive for users priced in other currencies. At the same time, higher bond yields raise the opportunity cost of holding non-yielding assets like gold.

Senior gold analyst and Chief Precious Metals Analyst at HSBC, James Steel, observed that recent buying interest in gold is largely driven by technical and momentum considerations.

"So far, the almost greedy investor demand may show some fatigue," Steel stated. He pointed out, "This demand level has not been mirrored in the physical market," especially with subdued jewelry demand and the demand for Western coins and bars being "largely (but not completely) lackluster."

He added that the momentum and the start of the Fed's easing cycle may continue to push up the price of gold in the short term, "but the market may feel tired."

Others believe that as the Fed's easing cycle finally begins, demand will remain strong, and in the geopolitical tensions in the Middle East and Eastern Europe, the attractiveness of gold as a safe haven remains intact.

RBC Capital Markets strategist Christopher Louney said in a report that expectations for further Fed rate cuts weighed on the dollar and bond yields, which is seen as a key driver for gold rebound, and the market is prepared for a natural pullback. He believes that the upward trend in gold will continue and may attract new buyers.

Louney wrote, "The long-awaited rate cut narrative is finally unfolding, which is favorable for gold, and we believe it will unleash demand that has been in a wait-and-see mode for the next 12 months."

Christopher Granville, Director General of Global Political Research at TS Lombard, warned, "America's rivals - Russia, Iran, and North Korea - are increasingly bringing 'October surprises' into the tail risk for the US before the election.

He wrote, "The most evident manifestation of this geopolitical tail risk aversion sentiment may be the increased investment in gold, or, for retail investors, they will focus on gold ETFs, with the flow of funds into this investment portfolio turning positive only after gold's price surged 25% since last year (as shown below)."

Granville said, "Gold as insurance against geopolitical tail risks is supported by the attractiveness of gold driven by fundamental factors (including cyclical and structural factors) remaining strong."

FxPro's Kuptsikevich stated that a series of overbought technical indicators does not necessarily mean gold will immediately face selling pressure, there may be more short covering in the future.

He wrote: "The most intense part of the rebound, the enormous short squeeze, may not have arrived yet. However, traders should also be alert to signs of growth exhaustion, which may occur after a very sharp correction."

Editor/ping