Gold’s Unprecedented Rally: A Perfect Storm of Rate Cut Bets and Central Bank Demand

The gold market is witnessing one of its most powerful rallies in decades, potentially heading for its strongest annual performance since 1979. A convergence of shifting U.S. monetary policy expectations and relentless institutional buying has created exceptional momentum for the precious metal, though questions emerge about sustainability following such substantial gains.

A fundamental shift in institutional behavior has provided strong underlying support for gold prices. Since 2022, central banks worldwide have been purchasing over 1,000 tons of gold annually—doubling the ten-year average acquisition rate. Their significantly increased share of global demand has established a durable price floor that continues to bolster the market.

Silver Steals the Spotlight

While gold commands attention, silver has delivered an equally impressive performance. The white metal reached a record high of $56.78 per troy ounce, attracting substantial speculative interest through technical breakouts. Even a multi-hour technical disruption at CME Group, which temporarily widened gold futures spreads to an extreme $20, failed to dampen the overwhelmingly positive market sentiment on Friday.

The sheer upward pressure becomes evident in the weekly closing figures: gold finished the week at $4,218.30, placing it just 0.07% below its 52-week peak of $4,221.30. With a weekly advance approaching 4%, the bullish momentum remains exceptionally strong.

Should investors sell immediately? Or is it worth buying Gold?

Regional Demand Presents Mixed Picture

The current price environment reveals divergent demand patterns across key markets. Traditional physical buying in major consumption centers shows signs of strain at these elevated levels. Despite the ongoing wedding season, Indian sales have stagnated, while China experiences purchasing hesitation following the elimination of certain tax exemptions.

Rate Cut Expectations Fuel the Rally

Market participants have dramatically increased their bets on U.S. interest rate reductions, creating the primary catalyst for gold's recent surge. Trading patterns now indicate an 85% probability that the Federal Reserve will implement a 25-basis-point cut by December—a remarkable shift from just 50% the previous week.

This dramatic sentiment reversal stems from several developments:

• Federal Reserve Communications: Governors Christopher Waller and New York's John Williams unexpectedly signaled openness to potential rate cuts
• Economic Indicators: Disappointing U.S. retail sales figures strengthened arguments for Fed intervention
• Leadership Speculation: Potential Fed chair candidate Kevin Hassett is viewed as supportive of lower interest rates

With year-to-date gains approaching 60%, gold continues to outperform most asset classes. As long as the combination of anticipated rate cuts and institutional accumulation persists, market participants will likely view any price dips as buying opportunities rather than trend reversals.