Betting on the Fed's interest rate cut next week is a foregone conclusion. Gold prices have risen for four consecutive weeks, reaching a record high near 3680.
2025-09-13 07:03:36
Gold prices rose on Friday, approaching a record high hit earlier this week, as signs of weakness in the U.S. labor market reinforced expectations that the Federal Reserve will cut interest rates for the first time this year next week.
Spot gold was trading at $3,648.55 an ounce, up 0.4%, nearing Tuesday's record high of $3,673.95. It marked its fourth consecutive weekly gain, adding 1.56% to the week. U.S. gold futures for December delivery settled up 0.3% at $3,686.40. So far this year, gold prices have surged 39%.
Recent data showed a sharp rise in U.S. initial jobless claims and weak non-farm payrolls, with the 12-month employment figure revised down by 911,000 jobs, suggesting that economic momentum is cooling.
Meanwhile, U.S. consumer prices saw their biggest month-over-month increase in seven months in August, but investors are prioritizing labor market slack over inflationary stickiness when forming their interest rate forecasts. Initial jobless claims surged last week, reaching their highest level since October 2021. Naeem Aslam, chief analyst at Zaye Capital Markets, said: "The Fed is caught between a rock and a hard place: high inflation is a constraint, while a weak job market is fueling easing bets."
The federal funds rate futures market has fully priced in a 25 basis point rate cut at the Sept. 17 meeting and is betting on a possible 50 basis point cut.
The market's focus on the Federal Reserve's interest rate cuts has shifted from whether it will happen to how many times and by how much by the end of the year. Industry insiders believe the Fed is likely to cut interest rates twice, by 25 basis points each, at its September and October meetings.
Economists at Morgan Stanley and Deutsche Bank now expect the Federal Reserve to cut interest rates at a faster pace in the coming months, as slowing inflation and a sluggish labor market allow it to act more quickly. Deutsche Bank on Friday increased its forecast for rate cuts to three times through 2025. The bank had previously projected that Fed officials, led by Chairman Jerome Powell, would cut rates this month before pausing until December. Morgan Stanley economists now expect the Fed to cut rates at four consecutive meetings until January.
"Taking these positive factors into account, along with recent increases in inflows into exchange-traded funds (ETFs), we now expect gold to rise to $3,900 an ounce by the middle of next year," said Giovanni Staunovo, an analyst at UBS Group AG.
Soojin Kim, an analyst at MUFG, said: "Weak U.S. labor data and in-line inflation data for August provide policymakers with room to ease policy, while a weaker dollar and falling U.S. Treasury yields further supported gold prices. Gold prices have soared 39% this year, outperforming stocks, with demand for gold boosted by central bank purchases, geopolitical uncertainty and inflows into ETFs."
UBS published a report saying that it maintains its view on gold as attractive and holds a long position in gold in global asset allocation. It believes that a mid-single-digit proportion (about 4% to 6%) of gold in asset allocation is the best choice. It raised its gold price forecast for the end of this year by $300 to $3,800 per ounce, and raised its forecast for the middle of next year by $200 to $3,900 per ounce, benefiting from the Federal Reserve's easing of monetary policy and the weakening of the US dollar due to interest rate cuts and geopolitical risks.
UBS also adjusted its forecast for gold ETF holdings, estimating that gold holdings will exceed 3,900 tons by the end of this year, close to the record of 3,915 tons set in October 2020. In addition, central bank gold purchases this year will remain strong at around 900 to 950 tons, slightly lower than last year's near-record high of over 1,000 tons.
Gold prices were also boosted this week by the geopolitical situation. Marcin Przydach, director of the International Policy Bureau of the Polish Presidential Office, said that a total of 21 drones crossed Poland's air border in the early morning of September 10. European countries remained vigilant. Polish Foreign Minister Sikorski said in Kiev on the 12th that some of the drones that entered Polish airspace on the night of September 9 flew in from Ukraine and also from Belarus.
Russian presidential press secretary Dmitry Peskov said on Friday that one should not be too optimistic about the Ukrainian negotiation process and expect it to produce immediate results.
U.S. President Donald Trump said on Friday that if new restrictions were imposed on Russia, they would target the banking and oil sectors and could include tariffs.
Europe's economic woes also boosted gold prices. Fitch downgraded France's credit rating, as repeated government failures have plunged the country into a protracted struggle to control its ballooning debt burden. The ratings agency lowered France's credit rating from AA- to A+, one notch below the UK and on par with Belgium. Fitch currently has the lowest rating for France among the major sovereign rating agencies, six notches above junk status.
Fitch said, "Since the legislative elections scheduled for mid-2024, France has had three changes of government. This instability has weakened the political system's ability to pursue substantial fiscal consolidation and made the previous government's target of reducing the fiscal deficit to 3% of GDP by 2029 almost impossible to achieve." Fitch also warned that "the period leading up to the 2027 presidential election will further limit the scope for fiscal consolidation in the short term, and the political deadlock is very likely to persist after the election."
Spot gold was trading at $3,648.55 an ounce, up 0.4%, nearing Tuesday's record high of $3,673.95. It marked its fourth consecutive weekly gain, adding 1.56% to the week. U.S. gold futures for December delivery settled up 0.3% at $3,686.40. So far this year, gold prices have surged 39%.
Recent data showed a sharp rise in U.S. initial jobless claims and weak non-farm payrolls, with the 12-month employment figure revised down by 911,000 jobs, suggesting that economic momentum is cooling.
Meanwhile, U.S. consumer prices saw their biggest month-over-month increase in seven months in August, but investors are prioritizing labor market slack over inflationary stickiness when forming their interest rate forecasts. Initial jobless claims surged last week, reaching their highest level since October 2021. Naeem Aslam, chief analyst at Zaye Capital Markets, said: "The Fed is caught between a rock and a hard place: high inflation is a constraint, while a weak job market is fueling easing bets."
The federal funds rate futures market has fully priced in a 25 basis point rate cut at the Sept. 17 meeting and is betting on a possible 50 basis point cut.
The market's focus on the Federal Reserve's interest rate cuts has shifted from whether it will happen to how many times and by how much by the end of the year. Industry insiders believe the Fed is likely to cut interest rates twice, by 25 basis points each, at its September and October meetings.
Economists at Morgan Stanley and Deutsche Bank now expect the Federal Reserve to cut interest rates at a faster pace in the coming months, as slowing inflation and a sluggish labor market allow it to act more quickly. Deutsche Bank on Friday increased its forecast for rate cuts to three times through 2025. The bank had previously projected that Fed officials, led by Chairman Jerome Powell, would cut rates this month before pausing until December. Morgan Stanley economists now expect the Fed to cut rates at four consecutive meetings until January.
"Taking these positive factors into account, along with recent increases in inflows into exchange-traded funds (ETFs), we now expect gold to rise to $3,900 an ounce by the middle of next year," said Giovanni Staunovo, an analyst at UBS Group AG.
Soojin Kim, an analyst at MUFG, said: "Weak U.S. labor data and in-line inflation data for August provide policymakers with room to ease policy, while a weaker dollar and falling U.S. Treasury yields further supported gold prices. Gold prices have soared 39% this year, outperforming stocks, with demand for gold boosted by central bank purchases, geopolitical uncertainty and inflows into ETFs."
UBS published a report saying that it maintains its view on gold as attractive and holds a long position in gold in global asset allocation. It believes that a mid-single-digit proportion (about 4% to 6%) of gold in asset allocation is the best choice. It raised its gold price forecast for the end of this year by $300 to $3,800 per ounce, and raised its forecast for the middle of next year by $200 to $3,900 per ounce, benefiting from the Federal Reserve's easing of monetary policy and the weakening of the US dollar due to interest rate cuts and geopolitical risks.
UBS also adjusted its forecast for gold ETF holdings, estimating that gold holdings will exceed 3,900 tons by the end of this year, close to the record of 3,915 tons set in October 2020. In addition, central bank gold purchases this year will remain strong at around 900 to 950 tons, slightly lower than last year's near-record high of over 1,000 tons.
Gold prices were also boosted this week by the geopolitical situation. Marcin Przydach, director of the International Policy Bureau of the Polish Presidential Office, said that a total of 21 drones crossed Poland's air border in the early morning of September 10. European countries remained vigilant. Polish Foreign Minister Sikorski said in Kiev on the 12th that some of the drones that entered Polish airspace on the night of September 9 flew in from Ukraine and also from Belarus.
Russian presidential press secretary Dmitry Peskov said on Friday that one should not be too optimistic about the Ukrainian negotiation process and expect it to produce immediate results.
U.S. President Donald Trump said on Friday that if new restrictions were imposed on Russia, they would target the banking and oil sectors and could include tariffs.
Europe's economic woes also boosted gold prices. Fitch downgraded France's credit rating, as repeated government failures have plunged the country into a protracted struggle to control its ballooning debt burden. The ratings agency lowered France's credit rating from AA- to A+, one notch below the UK and on par with Belgium. Fitch currently has the lowest rating for France among the major sovereign rating agencies, six notches above junk status.
Fitch said, "Since the legislative elections scheduled for mid-2024, France has had three changes of government. This instability has weakened the political system's ability to pursue substantial fiscal consolidation and made the previous government's target of reducing the fiscal deficit to 3% of GDP by 2029 almost impossible to achieve." Fitch also warned that "the period leading up to the 2027 presidential election will further limit the scope for fiscal consolidation in the short term, and the political deadlock is very likely to persist after the election."
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