Gold continued its strong advance on Monday, September 1st, following a record high close last Friday around $3,552 per ounce. The metal is currently trading near $3,580 per ounce in Monday's session, approaching its all-time intraday high recorded in the spot market in April. What is driving the gold price?
Expectations for a Fed Rate Cut
The primary catalyst for the surge is the growing market expectation for a September interest rate cut by the Federal Reserve. Markets are currently pricing in an approximately 85-87% probability of a 25 basis point cut at the meeting, with the decision to be announced on September 17th. In a recent statement, Mary Daly indicated her support for a rate reduction at the upcoming meeting; however, she is not a voting member this year or next. It's worth noting that the market began to more aggressively price in the odds of a cut following Jerome Powell's speech at Jackson Hole. Friday's PCE inflation data came in as expected, showing no significant price pressure.
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The uncertainty surrounding President Trump's attempt to remove Fed Governor Lisa Cook is also providing additional support for gold prices. A federal court is set to rule on whether Trump can legally dismiss Cook, raising concerns about the central bank's independence. Commerzbank notes that gold is responding to this growing uncertainty regarding the Fed's independence, which is also driving an increase in gold holdings within exchange-traded funds (ETFs).
Weakening US Dollar
The US dollar has weakened in recent days, a trend that is continuing today and providing a clear tailwind for gold. The EUR/USD pair is trading above 1.17 today, its highest level since August 25th. On a monthly basis, the dollar depreciated by approximately 2% in August.
Strong Central Bank Purchases
Central banks remain a key pillar of support for gold prices, marking their fourth consecutive year of significant purchases. The forecast for 2025 is around 1,000 tonnes, although the World Gold Council has suggested that final purchases may be closer to 800 tonnes. Nevertheless, central bank buying remains robust, and demand is being compensated for by ETF purchases.
Bank Forecasts
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Goldman Sachs maintains a year-end target of $3,700 per ounce, with a recession scenario target of up to $3,880.
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J.P. Morgan has raised its forecasts to an average of $3,675 per ounce in Q4 2025 and $4,000 in Q2 2026.
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HSBC has increased its average 2025 forecast to $3,215 per ounce, with a range of $3,100-$3,600.
Technical Situation
Gold is continuing its strong uptrend in today's session. The triangle formation that has developed in recent weeks points to a price target of $3,515 per ounce. Currently, key support is tied to the closing levels of the last four-month consolidation around $3,420-$3,430, along with the short-term uptrend line.
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