What's Expected for Gold Amid Declining Geopolitical Risks?
Gold prices fell on Thursday to around $4,005 per ounce at the start of trading, ending a record high amid potential profit-taking and signs of easing geopolitical risks. This comes after hitting a new record high yesterday at $4,059.
This decline follows the announcement of an agreement between the potential entity and the resistance on the first phase of a ceasefire and prisoner exchange plan, which dampened demand for the precious metal as a safe haven.
However, the bullish momentum for the metal remains strong in the medium term, supported by global economic uncertainty and expectations that the US Federal Reserve will continue to cut interest rates. Investors anticipate a 25 basis point cut at both the October and December meetings.
Price Action Details
Gold prices retreated slightly on Thursday, following a series of record gains that led it to cross the $4,000 barrier for the first time in history.
Spot gold: Down 0.4% to $4,020.99 per ounce.
US futures: December gold futures fell 0.7% to $4,040.70.
Record highs: This decline comes after the metal hit an all-time high of $4,059.05 per ounce on Wednesday.
Conflicting Market Drivers
1- Easing Geopolitical Tensions and Profit-Taking
The preliminary agreement between Israel and Hamas is a contributing factor in pressure on gold prices, as it reduces the geopolitical risks that had been supporting demand for safe havens.
Investors appear to have taken advantage of this opportunity to take profits after reaching a new record high.
This confirms that the current movement is a technical correction within a major uptrend.
2- Federal Reserve Policy and Interest Rate Cut Expectations
The minutes of the Federal Reserve's September 16-17 meeting revealed broad consensus among committee members that the risks of a deteriorating labor market are high, necessitating a potential interest rate cut.
Financial markets are currently anticipating:
- A cut in October: 94% probability.
- Another cut in December: 79% probability.
Gold, as a non-yielding asset, is one of the biggest beneficiaries of a low interest rate environment, which reduces the cost of carrying the precious metal.
3- Other Factors Supporting Demand
Despite the current decline, the structural pillars that have supported gold's 54% rise since the beginning of the year remain in place:
- Central Bank Buying: Continued aggressive buying by global central banks to diversify their reserves.
- Inflows into investment funds: Increased demand for gold-backed exchange-traded funds.
- A weaker US dollar: Making gold less expensive for holders of other currencies.
Political Uncertainty: The ongoing US government shutdown and political unrest in regions such as Japan and France.
Analysts' Forecasts and Market Outlook
Amid these conflicting factors, many analysts believe the outlook remains positive for gold.
Goldman Sachs raised its December 2026 gold price forecast from $4,300 per ounce to $4,900, citing strong inflows from exchange-traded funds (ETFs) into Western markets and continued aggressive central bank buying.
Ultimately, we believe the current decline in gold prices may represent a technical pause in a long-term upward trend, not the end of the trend. Supportive structural factors, including expected accommodative monetary policy, strong institutional buying, and global economic concerns, remain in place and provide a buffer against any potential collapse.
