Gold: whales eat up plankton

[Ben Graham]

Gold may face challenges, but they will be short-lived. Financial markets seem to have accepted that the Fed will not cut the federal funds rate in December, despite a series of weak data from alternative sources. However, derivatives imply a 68% probability of a monetary policy easing in January, with the possibility that borrowing costs could drop by as much as 50 basis points.

It is no surprise that about 26% of the 172 financial managers overseeing around $475 billion prefer the precious metal as their top pick for 2026. The only contender surpassing it is the Japanese yen, which received 30% of the votes in a Bank of America survey. Saxo Bank believes that the resilience of XAU/USD is a result of central banks and hedge funds absorbing the selling pressures from retail investors.

Preferred assets of financial managers in 2026

Despite the crash at the end of October, the precious metal has still risen more than 50% since the start of 2025 and is heading toward its best annual performance since 1979. The strengthening dollar and rising yields on US Treasury bonds create headwinds for gold. However, there are also tailwinds; geopolitical factors remain unchanged, the US national debt is increasing rapidly, and central banks continue to be active in the bullion market.

Goldman Sachs claims that the US purchased 64 tons of gold in September, three times more than in August. Moreover, the People's Bank of China increased its gold reserves by 15 tons, officially reporting a figure of 1.24 tons. According to the bank, the average monthly purchases by regulators are expected to be 80 tons. This trend allows Goldman Sachs to maintain its forecast of $4,900 per ounce by the end of 2026.

Gold dynamics in relation to other assets

Can gold restore its upward trend in 2026? Much will depend on the White House. Donald Trump has temporarily halted his pressure campaign on the Fed to lower the federal funds rate. However, it is unlikely that the US president has abandoned this idea. He believes that borrowing costs should drop to 1%, which would be a decrease of 300 basis points from current levels.

According to Bloomberg's model, if this occurs, the US economy could experience significant acceleration in 2026. However, an uncontrolled inflation scenario could lead to destructive stagflation and recession in 2027. As a result, gold may exhibit volatile dynamics: it will rise amid falling rates and a weaker dollar before beginning to drop due to economic strength, followed by a new rally.

For now, investors are focused on the minutes from the October FOMC meeting and September employment statistics in the US. How will these affect XAU/USD?

Technically, on the daily chart, gold is forming a reversal pattern of 1-2-3 and a triangle. A drop in the gold price below $4,040 and $4,000 could indicate an increase in short positions, while a rise above $4,210 per ounce would signal potential buying opportunities.

The material has been provided by InstaForex Company - www.instaforex.com