Gold will gain on USD weakness, Fed easing even if equities remain strong - HSBC’s Bohn

NEW YORK (November 25) Despite the recent choppiness, gold remains on an upward trajectory amid strong demand from central banks and retail investors, with central banks and gold-backed ETFs continuing to buy, according to Rodolphe Bohn, currencies and commodities strategist at HSBC.

In HSBC’s Think Future 2026 outlook publication, Bohn said that even with its impressive performance year-to-date and more recent volatility, the bank maintains a positive outlook for gold in the months ahead.

“We believe that investors can benefit from diversifying their exposure to global assets, particularly foreign exchange, through gold,” he wrote. “It offers resilience during periods of significant turbulence and holds potential for further appreciation.”

Bohn noted that gold is in the midst of one of its most successful years of all time, with year-to-date gains of around 54%. “This exceptional growth is primarily attributable to rising global uncertainty and concerns about USD debasement,” he said.

After hitting a new all-time high near $4,380 per ounce in October, profit-taking by retail investors drove gold down to $3,885 two weeks later. “Following a period of consolidation around USD 4,000/oz, gold appears to have resumed its upward trend, driven by speculation that upcoming economic data – delayed by the US shutdown – may support another rate cut by the Federal Reserve in December,” Bohn said.

He warned that while the current rebound is encouraging, the market may see further consolidation in the near term. “Subsequently, the uptrend could gradually resume, with prices maintaining a slow upward trajectory,” he said. “Despite improved global sentiment and rising global equities, current market conditions continue to provide a supportive backdrop for gold prices.”

“We believe that gold will continue to benefit from strong central bank demand, ongoing concerns over a weaker US dollar, and sustained interest in gold-backed ETFs,” he added. “In this context, gold remains a crucial diversifier within a portfolio, helping customers navigate persistent global uncertainties.”

Bohn believes central bank purchases will likely continue, though he expects the pace to moderate.

“Since 2022, the proportion of gold in global central bank reserves has grown significantly,” he wrote. “Gold constituted about 13% of these reserves in 2022, rising to approximately 22% by Q2 2025. During this time, gold prices have risen by roughly 125%, from USD 2,000/oz to over USD 4,000/oz.”

He noted that high prices do not appear to impact central bank buying. “The primary drivers for central banks are diversification and hedging against global risks,” Bohn said. “Since 2022, there has been a marked rise in global uncertainties, including geopolitical conflicts, economic and fiscal challenges, rising inflation, and significant political shifts – all of which are prompting central banks to restructure their reserves. Moreover, growing uncertainties surrounding the US economy – political, international, economic and fiscal – have generated negative sentiment towards the US dollar. Central banks have therefore reduced their US dollar exposure, enabling them to acquire gold more swiftly.”

Bohn called the rise in central banks’ gold reserves “a key structural factor” supporting gold prices.

“As institutional entities with robust, long-term strategies, central banks are unlikely to change their current framework rapidly,” he said. “Consequently, their consistent and stable purchases are expected to establish a price floor, keeping gold at elevated levels.”

“While they might slow their gold acquisitions, significant sales are improbable,” he added. “Selling gold to acquire other currencies is unlikely, thereby reducing the potential for downside volatility in the gold price.”

HSBC also believes demand from retail investors will be pivotal in shaping the gold outlook – particularly in the near term.

“Since mid-2024, the demand for gold-backed ETFs – as a way to invest in gold without purchasing the metal – has consistently trended positively,” Bohn wrote. “The same factors driving central banks to increase their gold reserves have influenced retail investors, significantly boosting interest in investing in gold.”

The economic backdrop also looks supportive, Bohn noted.

“While it’s intuitive to note a negative correlation between gold prices and the US dollar and US Treasury yields – where a stronger US dollar makes gold more expensive, reducing demand, and higher yields increase the opportunity cost of holding non-yielding gold – the positive correlation with equity indices is less straightforward,” he said. “Gold is traditionally a prime safe-haven asset and therefore tends to move in the opposite direction to equity indices. But recently, the gold price has tracked a move lower in equity indices, as market participants sold it to manage equity losses.”

Bohn pointed out that the positive correlation with equities is stronger when gold prices are at historic highs, but “this doesn’t imply that gold has lost its safe-haven status, and we believe that gold is still a protective asset.”

“Despite this positive correlation with equity markets, we remain confident in our constructive outlook for gold, anticipating a potential rise in prices in the coming months,” he said. “While our view on the US dollar remains neutral, we perceive downside risks. With the Federal Reserve resuming rate cuts and the resolution of the US shutdown increasing the likelihood of further cuts as early as December, we may witness additional strength in gold.”

Bohn acknowledged, however, the downside risks to HSBC’s positive outlook “if the Fed unexpectedly adopts a more hawkish stance or if the global economic environment improves, despite the current positive correlation.”

“Overall, given the anticipated weakness in the US dollar and further global easing, particularly from the Fed, there’s a basis for gold prices to rise, albeit at a slower pace than previously experienced.”