Futures and Commodity Market News

Oct 20, 2025 (MarketLine via COMTEX) --

Despite a brief drop following the breakthrough deal between Israel and Hamas, gold has maintained a strong uptrend to exceed $4,200 in recent days.

The break-out seen in gold at the start of September was primarily due to US monetary policy expectations. A deterioration in the US labour market has seen rates traders price in aggressive US Federal Reserve rate cuts in the future. Federal Funds Futures are implying a US interest rate that could drop below 3% next year, following two more cuts to round out 2025. Incidentally, thataEUR(TM)s below the FedaEUR(TM)s approximately 3.5% estimate for the neutral rate, which would take US monetary policy into notionally expansionary territory.

That move in gold in September was amplified by the attempted firing of Federal Reserve governor Lisa Cook for alleged mortgage fraud. The actions have led to the perception that the Fed would be dominated by policy doves in the future. That includes the expectation that current chairperson Jerome Powell will be replaced with a policy dove when his term ends in May; and, as a result, a policy rate that will be lower than it would otherwise be under a more independent board.

While monetary policy was the main driver of gold in September, OctoberaEUR(TM)s move has been all about fiscal settings. The election of Sanae Takaichi as leader of the ruling Liberal Democratic Party in Japan added fuel to the so-called aEURoerun it hotaEUR trade across the globe. Governments including Japan, US and Germany are running recession-like fiscal deficits at a time of above target inflation.

For example, the Committee for a Responsible Federal Budget estimates the US deficit-to-GDP is likely to be near 6% again next year, representing very expansionary settings. The dynamic is being compounded by permissive central banks willing to look the other way when it comes to inflation to focus on their employment mandates.

US trade policy has acted as an accelerant of a secular trend driving the gold price: de-Dollarisation. Central bank buying of gold, especially by the PeopleaEUR(TM)s Bank of China, is keeping a strong bid underneath gold on dips, as FX reserve managers look to diversify away from the US Dollar. Surpluses accrued by export economies that once would have been recycled into US Treasuries are being directed into gold. While the US Dollar is unlikely to be displaced in the near future, at the margins, central banks are shifting away from the Greenback and allocating towards gold instead.

Geopolitical risk has been an additional driver of gold and also dovetails into US trade policy and de-Dollarisation. Wars in the Middle East and (especially) Eastern Europe have added demand to gold as major institutions and wealthy individuals look to skirt sanctions and park their wealth in something tangible. As mentioned, the tentative peace deal between Israel and Hamas saw a drop in gold prices as the geopolitical risk premium fell. But that was quickly unwound by inflamed trade tensions between the US and China last week.

What Could Reverse the Trend

While the tailwinds for gold are evidently strong, there are, of course, risks to the uptrend. The aEURoerun it hotaEUR trade could backfire, leading to central banks to back off interest rate cuts. Such a move would likely hike-up yields and therefore weaken the demand for gold. A diminishment in geopolitical risks could also spark a pullback in gold, as witnessed by the drop in prices following the Israel-Hamas deal. A trade deal between the US and China could also slow the pace of de-Dollarisation, at least if only for a short time.

US monetary policy, threats to US Federal Reserve independence, global fiscal settings, trade policy, and geopolitical risk: the five key factors driving gold right now. The market is exhibiting mania-like qualities, risking a big drop if momentum reverses aEUR" although the latest COMEX data suggests positioning is not yet at extremes. Nevertheless, the long-term trend is strong for gold. And while all uptrends come to an end, it will take more than just one factor turning around to see it occur.

By Kyle Rodda, Senior Market Analyst, Capital.com

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COMTEX_469671957/2227/2025-10-20T18:09:12


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