CITIC Securities Co., Ltd.: The outlook for gold remains optimistic, with a neutral assumption that it is expected to exceed $4,500 in the first quarter of next year

According to the Zhitong Finance APP, CITIC Securities has released a research report stating that since the end of August, gold prices have risen rapidly. In addition to the previously noted long-term factors, recent expectations of interest rate cuts by the Federal Reserve, the U.S. government shutdown catalyzing safe-haven trading, and geopolitical disturbances in Venezuela may drive a rapid short-term increase. Although these short-term factors will eventually fade, the long-term bullish fundamentals are difficult to change, and the future outlook remains optimistic. Updated models indicate that under neutral assumptions, gold prices are expected to exceed $4,500 per ounce in Q1 next year.

The main points of CITIC Securities are as follows:

Gold has performed strongly since the end of August.

From August 27 to October 8, the London spot gold price rose from $3,376 per ounce to $4,040 per ounce, an increase of 19.7%. It was previously suggested that the balance between bulls and bears in the gold market from the end of April to the end of August was likely to be broken, leading to an optimistic outlook for gold prices. However, the increase in gold prices over the past month has exceeded expectations, mainly due to the following unexpected factors:

Expectations for interest rate cuts by the Federal Reserve have risen faster, with the market fully pricing in three rate cuts throughout 2025.

At the Jackson Hole annual meeting in August and the Federal Reserve's monetary policy meeting in September, Powell clearly focused on labor market risks, releasing dovish signals. However, Powell still retained cautious space in his remarks. The dot plot and economic forecasts from the September meeting also showed that Federal Reserve officials did not collectively decide to turn dovish. However, with the release of labor market and inflation data in August and September, as well as the smooth appointment of Stephen Moore as a Federal Reserve governor, market expectations for rate cuts have become clearer. According to CME FedWatch data, from August 27 to October 8, the market's expectation of a cumulative rate cut of 75 basis points or more by the December meeting has risen from 38.7% to 79.2%.

The U.S. government shutdown catalyzes safe-haven trading.

On October 1, due to the failure to finalize the new fiscal year budget, federal funds were exhausted, and the U.S. federal government experienced a "shutdown" for the first time in seven years. This shutdown is different from previous ones in that the Trump administration is more accepting of it. On one hand, Trump hopes to use the government shutdown to push for the firing of federal employees; on the other hand, the shutdown allows the Trump administration to selectively cut federal aid to Democratic states. Therefore, this U.S. federal government shutdown may last longer and have a greater impact on the market, resulting in a surge of safe-haven funds into the gold market.

Geopolitical disturbances still exist.

Although the Trump administration is currently promoting a ceasefire process between Israel and Hamas, there are no signs of a more stable geopolitical situation. In September, the U.S. repeatedly announced attacks on drug trafficking vessels departing from Venezuela and deployed a large number of naval and air military forces in the Caribbean to exert pressure on the Venezuelan government; in October, diplomatic contacts with Venezuela were further canceled. These dynamics indicate that the U.S. may launch military attacks on Venezuela under the pretext of combating drug crime. The Trump administration may choose to withdraw from the Middle East while strengthening its military presence in Latin America Looking ahead, short-term disturbances may have passed, but the fundamentals of the gold market remain very optimistic.

In the short term, the rapid rise in gold prices may be driven by various risk-averse sentiments, as reflected in the significant increase in gold ETF inflows in North America and Europe since the end of August, along with a rapid increase in long positions held by managed funds and reported positions in the COMEX market. After these emotional factors subside, the rapid upward trend in gold may temporarily come to a halt. However, since last year, the worsening of the U.S. federal debt issue, the gradual questioning of the dollar's credit, the global central banks' large-scale gold purchases, and the gradual easing of U.S. interest rates have consistently provided strong support for the gold market. There is still no need to worry about the risk of a significant pullback in gold prices; instead, focus should remain on seizing long opportunities. From a funding perspective, the current inflows are mainly from North America and Europe, while Asian funds have remained relatively subdued since April this year, which may still continue to drive prices upward in the future.

The updated model shows that under neutral assumptions, gold prices are expected to exceed $4,500 per ounce in the first quarter of next year.

Based on recent market dynamics, expectations for future interest rate cuts, market sentiment, and geopolitical risks have been adjusted. The updated model indicates that under neutral assumptions, gold prices are expected to exceed $4,500 per ounce by March 2026, while under optimistic assumptions, they may exceed $4,800 per ounce. Under pessimistic assumptions, the expected gold price remains at the $4,000 per ounce level.

Risk Factors:

Federal Reserve monetary policy easing is less than expected; U.S. inflation is lower than expected; geopolitical risks are lower than expected; global economic growth exceeds expectations; global central bank gold purchases are less than expected