Gold expected to attract buyers during dips

The capping of US/Eurozone tariffs to 15% is reasonable and has given the European Central Bank (ECB) the opportunity to pause. Consequently, the ECB has chosen to maintain its deposit rates at 2% for the third consecutive time since mid-2024.

The ECB looks confident regarding the current inflation levels and has decided not to commit to any specific actions in the medium term; instead, it will remain flexible and base its decisions on the data regarding inflation, assessing conditions on a meeting-by-meeting basis.

Many economists remain skeptical that the cycle of rate cuts has reached its conclusion.

ECB President Lagarde hinted that the ECB might be through with rate reductions, but she was cautious not to fully endorse that notion.

In parallel, the ECB has revised its growth forecast for 2025 upwards to 1.2% from 0.9%, although a slowdown to 1% is anticipated for 2026. This has contributed to a recovery of the European currency. The next ECB meeting is scheduled for October 30.

In a significant development, the US Bureau of Labor Statistics (BLS) reported last week that the US labour market was considerably weaker from April 2024 to March 2025 than previously indicated, with 911,000 jobs added, falling short of the decade-long average of one million. This suggests that tariffs may be negatively impacting businesses to some extent, making operations more challenging due to elevated prices for consumers. Despite this, US corporate earnings remain robust.

Meanwhile, the FOMC meeting is approaching this week to decide on policy matters. Given the current dovish conditions, a 25 basis-point cut is already factored into expectations, with some anticipating a 50 basis-point cut. However, one key factor markets shouldn’t overlook is that inflation remains high, complicating the decision for a more significant rate cut to meet the administration’s calls for a larger reduction.

In the meantime, the Federal Reserve is anticipated to lower its interest rate, while the Bank of England may refrain from doing the same due to inflationary pressures. Recent data has presented a mixed to weak picture of economic activity.

Specifically, manufacturing production declined, contrary to expectations of slight increases. However, construction output has shown signs of improvement, and the service sector has experienced growth.

This suggests that the Bank of England may choose to wait until December before taking any action.

Last week, gold reached a historic high of $ 3,650, fulfilling my annual projection made on April 21, 2025, in Business Recorder.

For the remainder of the year, gold is expected to attract buyers during dips, driven by several favorable factors. Ongoing uncertainties in the financial markets, stemming from the conflict between the Federal Reserve and the US administration over interest rates, tariffs, geopolitical instability and more importantly Central Bank buying of gold for its portfolio will continue to play a significant role.

Gold may experience occasional corrections but is likely to rebound and test new highs throughout the year. On the downside, a drop below $ 3,510 could lead to a deeper decline toward $ 3,470. Conversely, a breakout above $ 3,740 could propel gold towards $ 3,810.

WEEKLY OUTLOOK — Sept 15-19

GOLD @ US$ 3643— has support near US$ 3602. A break below this level could lead to a drop to US$ 3575. On the upside a clear break of 3682 will encourage for US$ 3710

EURO @ 1.1734— The Euro may still advance, but it must maintain 1.1640 in order to reach 1.1810-20. A break above this level could push it to 1.1860.

GBP @ 1.3558— Pound Sterling will find it difficult to rise unless it surpasses 1.3640. A drop below 1.3450 could lead it down to 1.3390.

JPY @ 147.67— Dollar needs to hold the support level at 146.70, but breaking past 148.60 is essential for a rise to 149.10, otherwise, it could fall to 146.10.

Copyright Business Recorder, 2025