No matter how the Federal Reserve tosses and turns, are the gold bulls already holding the winning ticket?

Brien Lundin, editor of the Gold Newsletter, said that there is a risk of "buying rumors and selling facts" when the Federal Reserve's interest rate decision or actual rate cut is very close. However, more and more global investment portfolios are increasing their allocation to gold because "whether the Fed is gradually cutting interest rates or being forced to cut more urgently due to economic recession concerns, this precious metal will perform well."

"In my opinion, the lesson is that gold has established its position as a 'all-weather risk hedge tool'," he said.

Last Friday, gold futures for December delivery on the New York Mercantile Exchange rose $30.10, or 1.2%, to close at $2610.70 per ounce, after hitting an intraday record high of $2614.60, with a weekly gain of 3.4%, marking the 34th closing high of the year.

Joe Cavatoni, Senior Market Strategist at the World Gold Council, said in an email comment that currently, the momentum in Western markets has been a short-term driver of gold prices before the Fed's rate cut.

As of last Friday, the CME FedWatch tool showed that the probability of the Fed cutting rates by 50 basis points and 25 basis points at the next meeting has risen to fifty-fifty.

Cavatoni believes that although the impact of rate cut expectations can be seen from the rise in gold prices, it has "not been fully digested" yet. He said, "Rate cuts may intensify upward pressure on prices in the coming weeks and manifest as increased demand from investors over a longer period of time."

Gold Demand

Cavatoni pointed out that as a global asset, the World Gold Council has always been monitoring "various forms of gold demand," and with gold prices hitting record highs, this situation may change.

He said the industry association has been monitoring the flow of jewelry in Asia to understand investment demand in the region. It is also evaluating other factors that stimulate demand from Western investors, including upcoming elections that may increase uncertainty, and gold can serve as a hedge against "immediate event risks."

Cavatoni stated that globally, central bank demand remains a major driver, with central bank purchases reaching a 14-year high in 2022 and 2023, "also supported by ongoing concerns about US dollar assets and inflation."

In addition to central bank demand, traders seem to prefer a form of gold investment.

Adrian Ash, Research Director at BullionVault, said that currently investment in gold is still "limited to speculative trading of derivative contracts, rather than physical gold."

He stated that users of BullionVault, the world's largest online service for investing in gold, silver, platinum, and palladium, continue to be a group that "net profits," while coin dealers are still "filled with buyers selling them second-hand products."

Ash said that last Thursday, trading volume of the main gold futures contracts on the CME derivatives exchange rose more than 26% above the September daily average, and trading volume of high-leverage gold options contracts rose by 80% As of September, the SPDR Gold Shares ETF, supported by gold, has risen by 0.9%.

He said that, in contrast, the gold demand of BullionVault, holding over $3.6 billion worth of gold, has increased by 14% in the past 24 hours, but the selling volume has surged by 298%, resulting in a "net sell-off" of nearly 0.1 tons.

Ash stated that investors have taken profits as the gold price, denominated in US dollars, euros, and pounds, reached new historical highs. This is due to "leverage and lack of fear," as this rebound is "more about the Fed rate cut next week" rather than geopolitical tensions.

He explained, "Geopolitical violence and tensions are laying the foundation for the upward trend in gold prices, guaranteed by continuous bidding for gold by central banks outside the West, but now, speculation on the Fed rate cut is dominating the new record prices."

Ash added that as the Fed concludes its two-day policy meeting, any disappointing outcomes from either the interest rate decision or the new dot plot forecasts are likely to bring the anticipated pullback that long-term investors hoping for a decline in gold prices have been waiting for, if not a correction.