Central bank buying, ETF inflows support bullish outlook
Gold is set to extend its remarkable rally toward $4,550 an ounce as Federal Reserve rate cuts and a weakening dollar create ideal conditions for the precious metal, according to Yes Bank Ltd.
The bank’s technical analysis suggests gold will confirm a move to the $4,500-$4,550 range once it closes above $4,400 daily, though a drop below $4,200 would invalidate the bullish scenario. The metal has already delivered 63% returns this year, vastly outperforming the S&P 500’s 15% gain.
“Fed restarted its rate cutting cycle in September and has already cut 3 times in 2025,” Yes Bank economists wrote in their December outlook. “The labour markets have weakened significantly – nonfarm payrolls in November increased by only 64k while unemployment rate crept up to 4.6%.”
The bank notes that gold is “forming higher highs and higher lows” and is “currently trading near last peak level,” though momentum indicators suggest the metal needs “more confirmation for a new bull move.”
Dollar Weakness Supports Prices
A key driver behind gold’s surge has been renewed depreciation pressure on the dollar index, which typically moves inversely to gold prices. With additional rate cuts expected given recent weak labor market data, the dollar faces further headwinds.
However, Yes Bank cautions that dollar strength could return in the second half of 2026 “based on growth differential between the US and the rest of the world, especially Europe.” German fiscal stimulus plans have stalled, and economic data points to softer growth in Europe compared to the United States.
“The potential driver for the future rate expectations of the ECB could be the implementation of the fiscal spend and other growth plans for 2026 and 2027,” the bank said. “Thus, ensuing dollar strength can be a headwind for gold prices.”
Central Banks Fuel Demand
Global uncertainty and concerns about the dollar’s reserve currency status have driven central banks to dramatically increase gold purchases. Yes Bank data shows central bank net purchases averaging around 226 tonnes in recent months, up from approximately 137 tonnes in earlier periods.
“Continued global uncertainty and bets against the USD as a reserve currency has led to global Central Bank gold demand surge,” the report states, though it adds that “while this may continue, the pace could however slow in 2026.”
Exchange-traded fund flows have also remained robust throughout the year, with Asia attracting the highest inflows at 23.6 tonnes in November out of total global flows of 38.5 tonnes. “Global gold ETFs have seen strong demand throughout the year except in May,” Yes Bank noted.
Risk Premium Remains Elevated
The World Gold Council’s Gold Returns Attribution Model for November revealed that a “residual factor” – representing unexplained price movements – has been the biggest driver of gold’s recent gains. This suggests the rally has significant momentum beyond traditional macro factors.
“The Residual factor explaining gold’s upswing has continued to remain strong,” Yes Bank said, citing the WGC analysis. “On the other hand, risks and uncertainty factor and the opportunity cost factors moved lower, implying that the price movement for gold has a large unexplained variation and may reverse fast if some of the above were to materialize.”
The bank also pointed to Commodity Futures Trading Commission positioning data, noting that speculative positions are “not at historical highs” and can “accommodate more long positions and support gold prices.”
Looking ahead, Yes Bank sees uncertainty around the next Federal Reserve chair appointment as a potential catalyst. “We also near the end of the term of the current Fed Chair and a Trump nomination to the Fed Chair is expected to be more bullish with the cutting cycle,” the report said, referring to former President Trump’s criticism of the Fed for being slow to reduce rates.
