When will gold rebound? Institutions: Focus on 3 signals

Bank of America said in a report on Monday that despite continuously stable investment demand, it remains cautious about the short-term price prospect of gold due to weak physical demand.

The bank stated that it expects the average gold price in the fourth quarter to reach $4,000 per ounce, and the average price in 2027 is expected to rise to $4,813 per ounce.

The bank noted that short-term headwinds will persist before the risks brought by the Iran war pushing up oil prices ease.

Bank of America said that although gold ETF positions have increased recently, gold prices have remained weak in recent weeks. If investors start to sell off, gold prices may face greater downward pressure.

Data tracked by the bank shows that overall gold purchase activities by central banks, China and India have all weakened. Citing feedback from the London Bullion Market Association (LBMA) annual conference last week, Bank of America said the physical gold market remains weak.

"As the conflict in the Middle East escalates again, there is a risk that central banks will resume gold sales," Bank of America wrote in the report. "At present, gold positions have declined to a certain extent, which is actually not surprising — after all, about 90% of the growth in the value of gold positions comes from the rise in gold prices, rather than real net purchases."

Bank of America believes that gold can only truly bottom out and rebound when inflation concerns and the Iran war situation ease, the dollar stops appreciating, and the Federal Reserve ends its tightening cycle.

The bank stated that gold prices need clearer guidance from the Federal Reserve to find a bottom and restart the long-term upward trend.

Bank of America also pointed out that although a dovish shift in the Federal Reserve's monetary policy will be a more important driving force pushing gold prices higher, gold can also gain new upward momentum if market concerns about currency devaluation heat up again.

In the past few months, tensions in the Middle East have pushed up oil prices, exacerbated inflation concerns, and strengthened the rationale for the Federal Reserve to raise interest rates. Although gold is usually regarded as an inflation hedging tool, higher interest rates tend to attract investors to turn to income-generating assets (such as bonds) instead of holding non-interest-bearing assets like gold.

Short-term Trend Depends on US CPI

On Tuesday, gold prices rose slightly as oil prices fell, and the market focused on the upcoming U.S. inflation data, including the Consumer Price Index (CPI) to be released on Wednesday and the Producer Price Index (PPI) to be released on Thursday, to find new signals for the Federal Reserve's interest rate path.

As of press time, spot gold prices rose 0.36% to $4,186.87 per ounce. U.S. gold futures rose 0.47% to $4,210.30 per ounce.

Kyle Rodda, senior financial market analyst at Capital.com, said the U.S. CPI data is crucial to the short-term trend of gold. If the inflation rate is higher than expected, especially the core inflation rate, and leads to a slight rise in expectations of a rate hike in October, the gold price may fall further.

This article is from the WeChat official account "CLS", author: Bian Chun, published by 36Kr with authorization.