Gold prices rose 2% to $4,075 per troy ounce on Wednesday, as investors assessed expectations that the US Federal Reserve could raise interest rates again, the Financial Times reported.
Central-bank buying supports gold outlook
Provisional data from the World Gold Council cited in the report showed that central banks purchased around 63 tonnes of gold in September, the highest monthly level since November 2024. The figures were compiled using central-bank and International Monetary Fund data.
Gold crossed $5,500 per ounce once in January following a sharp rally, although prices subsequently retreated. The metal has nevertheless remained at historically elevated levels.
MUST READ: Gold, silver prices on October 16: Check latest rates in Delhi, Mumbai, Kolkata, other cities
The outlook comes as gold and silver prices recover some ground in international markets after a sharp selloff earlier in the week. On Friday, October 16, COMEX gold futures were trading at $4,177.50 per ounce, up 0.18%, while silver futures gained 0.48% to $57.43 per ounce.
Domestic bullion prices, however, remained under pressure. Gold prices in New Delhi fell by ₹900 to ₹1.49 lakh per 10 grams on Thursday, marking a fourth consecutive session of declines. Silver prices dropped ₹6,000 to ₹2.15 lakh per kilogram, according to PTI. A stronger rupee and subdued physical demand weighed on domestic prices.
Government debt and geopolitical risks drive demand
Speaking at the Financial Times' Precious Metals Symposium, Charlotte Yonge, a fund manager at Troy Asset Management, said gold could provide a hedge against deteriorating government finances. She pointed to rising US government debt and the possibility of central banks expanding money supply if the global economy enters a recession.
Paul Carne, delegated chief investment officer for Europe, the Middle East and Africa at Aon Investments, also expected gold to reach new records within two years. He suggested that weakening confidence in the US dollar could encourage investors to turn towards gold.
Peter Marrone, chair and chief executive of Allied Gold, said investors should consider whether their portfolios were prepared for a potential financial crisis. He added that deteriorating economic conditions could prompt investors to shift some holdings away from government bonds towards gold.
ALSO READ: Gold ETF inflows stopped: Major fund houses slam brakes ahead of festive season buying
Ian Cockerill, chief executive of Endeavour Mining, highlighted concerns about currency depreciation and said central banks were increasingly focused on protecting the value of their reserves.
Interest-rate outlook remains a key risk
Near-term price movements will also depend on US inflation and Federal Reserve policy expectations. September US consumer inflation rose 3.7%, above the expected 3.6%, raising concerns that interest rates could remain elevated for longer.
Higher interest rates and bond yields tend to weigh on gold and silver because the metals do not generate interest income. A stronger dollar can also make bullion more expensive for buyers using other currencies.
Geopolitical tensions in West Asia could support safe-haven demand, but their impact may be offset by movements in the dollar and bond yields. In India, currency movements, import costs and domestic demand will also influence prices.
Despite the near-term risks, continued central-bank purchases and investor demand for protection against economic uncertainty could support gold over the coming two years, the Financial Times report suggested.
DO READ: Gold prices fall 23% from peak: How vulnerable are gold lenders and borrowers in current situation?