Gold Rally Continues Amid Fed Easing and Tariff Tensions

Gold (XAU) reached a new all-time high on Tuesday, 14 October, after Fed Chair Jerome Powell expressed concerns about the U.S. labour market getting weaker. The Dollar declined as his dovish remarks raised the odds of an October interest rate cut. Ahead of Powell’s speech, the buck was supported by safe-haven flows amid trade tensions between the U.S. and China. However, tensions between the trading partners escalated, adding to Gold’s bullish momentum.

TL;DR

• Gold hit an all-time high of $4,185 on 14 October, up 55% YTD

• Fed Chair Powell signalled an October rate cut due to the weak labour market

• U.S.-China trade tensions escalated after 100% tariff threats

• China announced reciprocal port fees while Trump threatened to halt cooking oil trade

• Societe Generale forecasts $5,000 by the end of 2026

Why Did Gold Reach New Highs?

Gold reached a new high on Tuesday, 14 October, as the non-yielding asset benefited from a weaker Dollar after Powell signalled a 25-basis-point cut in October. The yellow metal was already boosted by trade tensions between the U.S. and China following President Donald Trump’s 100% tariff threats on China last Friday, 10 October, as well as the ongoing government shutdown. Notably, investors rushed on Tuesday to place new orders on the metal after Trump threatened to stop cooking oil trade with China. This followed China’s sanctions on Korean shipbuilder Hanwha Ocean on Monday, which allegedly “assisted and supported” a U.S. probe, as well as reciprocal port fees on ocean shipping on Tuesday. Trump’s threat last Friday came as a response to China’s new rare-earth export controls.

Can the Gold Rally Continue?

The record rally marked its third day of new highs in early Wednesday trading, but whether it continues will likely depend on expectations for Fed rate cuts, whether trade tensions intensify, and when the U.S. government reopens. Powell said during his speech at a conference in Philadelphia that the current data shows “very low levels of job creation” but also emphasised a “meeting-by-meeting approach” to try and balance the weakness in job markets with inflation being above target. This suggests that if the CPI, now due to be released on 24 October and ahead of the next FOMC, comes in at or near estimates, the Fed is likely to cut at the end of the month and assess the situation based on new data. A protracted shutdown is likely to make the Fed’s job more challenging as policymakers work with available data, as policymakers turn to private data sources, and support the prices of Gold.

Although Powell may have reinforced expectations of rate cuts, he also noted that the current data show tariff-led inflation pressures. But investors appear more interested in safety amid the government shutdown than in U.S. yields. With the U.S.-China tariff war ongoing, Gold and Silver, along with other Metals, could be further boosted by trade tensions. Silver (XAG), in particular, alongside Palladium (PA) and Platinum (PL), may be caught up in tariffs, as the latest tit-for-tat has raised concerns that the ongoing U.S. Section 232 investigation into critical minerals will conclude in that favour. In the latest developments following Trump’s post on cooking oil, U.S. Trade Representative Jamieson Greer said a 100% tariff could even come before 1 November, the date initially provided by Trump. On the other hand, the Chinese Ministry of Commerce said, "If the U.S. chooses confrontation, China will see it through to the end; if it chooses dialogue, China's door remains open."

Where Could Gold Go Next?

Gold is up some 55% year-to-date due to the Fed’s easing policy path, geopolitical escalation, and central bank buying, peaking at $4,185 per ounce. Bloomberg wrote recently that the Fed is expected to cut twice this year, which is evidenced by both the October and December meetings, as odds sit at 96% and 93%, respectively, according to the FedWatch Tool. Societe Generale (GLE.PA) believes that with increasing ETF flows and ongoing central bank demand, the prices of Gold will reach $5,000 per ounce by the end of next year, while Ed Yardeni forecasted $10,000 in the longer term by 2030. 

Note that major banks’ forecasts for Gold for 2025 ranged from $3,291 to $3,800, with Goldman Sachs (GS), Standard Chartered (STAN-L), and Bank of America (BAC) joining Societe Generale in raising Gold’s target price in October. (Source: Finance Magnates)

*Past performance does not indicate future results.