Full-Fledged Gold Price Correction... "Could Drop to $3,700"
Entering Short-Term Correction Phase on Hopes of U.S.-China Trade Truce
Long-Term Uptrend Driven by Rate Cut and Weak Dollar Expectations
Ahead of the US-China summit, signs of easing trade tensions between the two countries led to a drop in international gold prices on the 27th (local time), with the price per ounce falling below the 4,000-dollar mark. Experts noted the possibility of a short-term correction to 3,700 dollars, but predicted that gold could recover to the 5,000-dollar level next year in the long term.
Gold bars are on display at the Saint Vincent Jewelry Center in the Jewelry District of Los Angeles, USA. Photo by AP Yonhap News
The Golden Rally Pauses... Over 9% Drop in a Week
According to Reuters, as of 12:25 p.m. Eastern Time, the spot gold price was trading at 3,991.39 dollars per ounce, down 2.9% from the previous session. December gold futures on the New York Mercantile Exchange (COMEX) also plunged 3.7% to 3,985.9 dollars per ounce around 11 a.m.
International gold prices broke through 4,000 dollars per ounce for the first time earlier this month and hit an all-time high of 4,381 dollars on the 20th. However, within just one week, prices dropped by more than 9%.
This correction is seen as a result of expectations for easing US-China trade tensions. US President Donald Trump is scheduled to meet with Chinese President Xi Jinping during the Asia-Pacific Economic Cooperation (APEC) summit in Gyeongju, South Korea, this week. At the fifth high-level trade talks held in Malaysia on the 25th and 26th, the US agreed to suspend additional 100% tariffs on Chinese goods, while China agreed to temporarily lift export controls on rare earth elements, reaching consensus on key issues. US Treasury Secretary Scott Besant suggested the possibility of resolving the US-China conflict at the ASEAN summit, stating that "a successful framework for discussions between the two leaders has been established."
The gold market has described this decline as a "healthy correction." At the same time, analysts noted that the correction could continue for a while, raising the possibility that gold prices could fall to 3,700 dollars per ounce.
Nicholas Frappell, Global Institutional Markets Manager at ABC Refinery in Australia, stated, "We are clearly in a correction phase right now, and such corrections do not end in just a few days." He predicted, "Gold prices could fall to 3,700 dollars and then attempt to reach new highs again."
Paul Fisher, Chairman of the London Bullion Market Association (LBMA), described the recent surge as a "bubble," saying, "Last week's decline in gold prices was an important move to clear speculative positions and remove excess froth from the market." He added, "Once the correction ends, the market will be ready to rise again."
Even optimists are wary of the possibility of a short-term sharp decline. John Reade, Chief Market Strategist at the World Gold Council (WGC), said, "Some investors actually see the 3,500-dollar level as a healthy price," adding, "It is still historically high."
On the 21st (local time), a goldsmith is posing with a gold coin at a store in Bonn, Germany. Photo by Reuters Yonhap News
Major Banks Remain Optimistic... Gold to Reach 5,000 Dollars Next Year
Despite concerns about a short-term correction, the long-term outlook for gold prices remains positive.
If the US Federal Reserve (Fed) begins a full-fledged interest rate cut, the value of the dollar is likely to weaken. This dollar weakness could stimulate investor demand for safe-haven assets, leading to higher gold demand. Typically, when rate cuts and dollar weakness coincide, real interest rates fall and gold's value as a store of wealth is highlighted, boosting gold prices. Continued gold purchases by central banks in major emerging markets such as China, India, and Brazil are also cited as factors supporting the upward trend. HSBC stated in a report, "Net purchases by central banks will remain at record-high levels," and analyzed that "the move away from the dollar is acting as a structural driver for gold's strength."
Although US-China tensions appear to be easing, competition over strategic industries such as AI, semiconductors, and critical minerals has not been completely resolved, which is also cited as a factor that could affect future gold prices. In such an uncertain environment, demand for gold as a hedge is likely to remain steady.
Based on these factors, global investment banks such as HSBC, Bank of America (BoA), and Societe Generale predict that gold prices will reach 5,000 dollars per ounce next year.
BoA stated in a report, "If the Fed enters a rate-cutting cycle, real interest rates will fall, which will increase the investment appeal of gold." The report added, "Combined with a weaker dollar, the upward momentum could become even stronger." Societe Generale also noted, "Gold purchases by central banks and institutional investors are supporting structural demand."
While gold prices have paused, the New York stock market continued its rally on the back of expectations for a US-China trade agreement. The S&P 500 index surpassed the 6,800 mark for the first time ever. AI and semiconductor stocks such as Nvidia and Broadcom led the rally. Tesla and Qualcomm also rose more than 4%, supporting the market's upward momentum. Qualcomm surged as much as 11% during the session, hitting an all-time high on news of its new AI chip announcement.
Sam Stovall, Chief Investment Strategist at CFRA Research, said, "If the US and China reach a favorable agreement, the two countries will return to a cooperative trajectory." He added, "A shift in the perspective that excluded China from the technology industry would have a very positive impact on the market." He also predicted, "In an environment of expected rate cuts and economic slowdown, small and mid-cap stocks will outperform large-cap stocks."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
