The explosive trend of gold is still ongoing.

In today's trading session, spot gold once broke through $2630 per ounce, hitting a new historical high. In the afternoon, spot gold turned from gains to losses, now down 0.22% at $2616 per ounce.

Since the beginning of the year, the momentum of gold against the US dollar has been fierce, with a cumulative increase of over 27%.

Boosted by the Fed's interest rate cuts and escalating Middle East conflicts, the surge in risk aversion has made the trend of gold even stronger.

Fed rate cuts, US total debt hits record high

Last week, the Fed opened the door to rate cuts, providing impetus to the rise of gold.

The Fed cut the benchmark interest rate by 50 basis points to 4.75%-5.00%, exceeding the general market expectations.

Powell emphasized after the meeting that this rate cut was a "forceful action," which was a timely move.

The dot plot also shows that Fed officials expect a total of 50 basis points rate cuts in the remaining two interest rate meetings this year.

Last Friday, Fed governor Waller stated that the Fed's 50 basis point rate cut in September was the right move to maintain the strength of the US economy.

If the economic situation develops as expected, he may support rate cuts of 25 basis points at the monetary policy meetings in November and December.

However, he also indicated that if the employment market weakens, there may be another 50 basis point rate cut; if inflation data suddenly reverses, it might support a pause in rate cuts.

This week, a series of important economic data including the US September Markit Manufacturing and Services PMI preliminary readings, August PCE Price Index, and August Real Personal Consumption Expenditures will be released.

Federal Reserve officials will once again review inflation data, while traders are weighing interest rate prospects.

Bank of America believes that the Fed's outlook for gradual decline in inflation is still on track.

If US economic data proves that the Fed still has room to further lower the US dollar interest rates, it will inevitably provide further impetus to the rise in gold prices.

Another aspect to keep an eye on is that the US deficit and debt have set new world records.

Precious metals investment researcher Laurent Maurel from Recherche Bay stated that US public debt has reached a record 34.5 trillion US dollars. The debt-to-GDP ratio is currently at 123.7%.

Looking back in history, countries with debt-to-GDP ratios exceeding 130% often experience debt defaults. As the US dollar loses its status as the major currency for international trade, this risk will further intensify.

In addition, the US trade deficit in July widened to $78.8 billion, the largest shortfall since June 2022; the budget deficit in August was well above expectations, with the figure already surpassing $290 billion in the previous month.

Escalation of the Middle East conflict.

Apart from the Federal Reserve, the risk of a full-scale war erupting in the Middle East is sharply rising, leading to a surge in gold safe-haven demand.

Over the weekend, Israel continued its raids, with the top military commander of Hezbollah in Lebanon being assassinated.

Late on September 21st local time, the Israeli Air Force launched another large-scale airstrike in southern Lebanon. According to the Israeli military, approximately 400 Hezbollah rocket launchers were destroyed in the operation on the 21st alone.

Previously, Israeli Defense Minister Yoav Gallant stated that Israel is launching a new phase of war on the northern border, with the sequence of the new phase of operations to continue until its goals are achieved.

As the conflicts between the two sides escalate, the risk of a full-scale war intensifies.

Furthermore, behind the sharp rise in gold prices is the surge in global central bank gold purchases, with the Reserve Bank of India also increasing its holdings.

With the reduction of tariffs, India's gold imports in August reached $10.06 billion, hitting a historical high.

According to the World Gold Council's estimation, India imported 140 tons of gold, three times the total import volume in July. So far, India's gold imports in 2024 have increased by 30%.

Data also shows that the Reserve Bank of India has increased its gold holdings by 50 tons this year.

Since 2017, the Reserve Bank of India has been consistently purchasing gold. During this period, its gold holdings have increased by over 260 tons.

The Reserve Bank of India currently holds a record 853.6 tons of gold; gold accounts for 9% of its foreign exchange reserves, higher than 7.5% a year ago.

Institutions' divergence on the future trend of gold is intensifying.

Peter Schiff, the founder and chief market strategist of Europe Pacific Asset Management, recently stated that gold is having one of its best years ever. Gold has risen by over 26% this year, potentially surpassing the 32% increase in 2007.

He emphasized that the price of gold is set to have its best year since 1979, when it rose by 126%. Gold has already risen by over $540 this year, marking its largest dollar gain in history.

Bank of America analyst expects that the rebound in gold still has further room for extension, and the price of gold may peak at the target of $3000 per ounce.

RBC Capital Markets strategist Christopher Louney stated that the expectation of further interest rate cuts by the Fed dragged down the dollar and bond yields, which is seen as a key driver for the rebound in gold and prepares the market for a natural pullback.

But he believes that the upward trend in gold will continue and may attract new buyers.

"The long-awaited interest rate cut narrative has finally unfolded, which is favorable for gold. We believe this will release demand that is still in a wait-and-see mode over the next 12 months."

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

"The most intense part of the rebound, namely the massive short squeeze, may not have arrived yet. However, traders should also watch for signs of exhaustion of growth, which may occur after a very sharp correction."

Senior gold analyst James Steel pointed out that the recent rise in gold was mainly driven by technical and momentum factors, and the almost 'greedy' investor demand for gold may show signs of fatigue.

He also noted that the demand in the physical market, especially for jewelry, is not strong, while the demand for Western gold coins and bars mostly remains flat.

OCBC Bank forex strategist Christopher Wong said that the technical support level for gold price may be around $2580 per ounce.

"The bullish momentum is undeniable, but I may adopt a cautious attitude in the short term."

Editor / jayden