According to one market strategist, George Milling-Stanley, chief gold strategist at State Street Global Advisors, activity in the precious metals sector will increase over the next few weeks. This is due to the approaching major holidays and festivals in the USA, as well as the Indian festival of lights, Diwali, in November, when demand for physical gold increases. After Diwali, the wedding season begins in India, another period of steady consumer demand for gold.
At the same time, if Chinese stimulus measures can support the country's economy, demand for the yellow metal from Asia will also rise. Consumer demand could play a crucial role in returning the price to $2,000 per ounce before the new year.
Currently, the precious metal is in decent shape. This is evident as prices haven't dropped significantly during a time when the yield on 10-year bonds continues to trade close to 15-year highs above 4%.
Furthermore, although the Federal Reserve maintains an aggressive stance on monetary policy, the central bank is nearing the end of its tightening cycle. Even if the interest rate is raised by 25 basis points in September and November, it is insufficient to provide a real boost to the U.S. dollar. Therefore, such an increase does not pose a threat to gold.
It's also worth noting that interest rates can start working against the U.S. dollar, potentially pushing the economy towards recession. While the U.S. central bank remains optimistic about reducing inflation to 2% without causing a recession, the risk still exists.
During the Jackson Hole symposium on Friday, Fed Chairman Jerome Powell acknowledged that there are risks present in the economy. He metaphorically stated that the central bank is "navigating by the stars under cloudy skies."
Powell said that sustainable inflation reduction to 2% would require some easing in labor market conditions. And although he doesn't use the term "recession," his comments make it clear that he doesn't deny the threat of an economic downturn. Hence, there are already enough impending factors for a gold rally by the end of the year, along with the Fed chairman's doubts.
