(Yicai) Oct. 8 -- Expectations for higher US interest rates continue to put pressure on the price of gold, which remains at relatively low levels, despite ongoing purchases by central banks.

Amid volatility, the price of gold on international markets fell over the course of China’s seven-day National Day holiday. Spot gold in London fell to an intraday low of USD4,066 per ounce yesterday before closing at USD4,111, or 1.3 percent lower.

While an unexpected cooling of US jobs data has eased the likelihood of the Federal Reserve raising borrowing costs this month, the market has already priced in more than three rate hikes by the end of next year, said Xia Yingying, head of precious metals and new energy research at Nanhua Futures.

As a result, gold is under near-term pressure, though the scope for further tightening is limited, Xia said. But any price increases await catalysts such as a weakening of rate hike expectations or the emergence of negative feedback loops across the stock, bond, and currency markets, she added.

While central bank purchases and the peak season for physical gold consumption are helping to solidify a price floor for the precious metal, a clear trend-driven rally depends on further clarity regarding the interest rate environment, Xia pointed out.

China’s gold reserves rose for the 23rd consecutive month in September, increasing by 740,000 ounces to 77.47 million oz, the People's Bank of China disclosed yesterday.

Looking at the medium to long term, HSBC recently lowered its forecasts for international gold prices for this year and next, citing the probability of further US rate increases and the potential for rising oil prices to exert short-term pressure on gold. The bank trimmed its average price prediction by USD70 per oz to USD4,490 for 2026, and by USD100 per oz to USD4,825 for 2027.

Regarding China’s swelling gold reserves, industry insiders told Yicai that, at the level of official reserves, gold constitutes a key part of diversification, and a shift in pricing dynamics will not happen overnight. Caught between the pressure of short-term interest rates and the medium-to-long-term re-evaluation of credit, the metal will likely need to "trade time for space,” they said.

Goldman Sachs Research notes that sustained and robust gold buying by global central banks is supporting an upward trend in gold prices and underpinning its target price of USD4,900 per oz for the end of 2026.

The market may need to wait for a clearer price signal, according to industry insiders. That could take the form of either confirmation that inflation is receding, thereby creating room for lower rates, or the materialization of US dollar credit risk in a way that the market can price in. Until then, market volatility itself represents a process of structural realignment, they noted.

Editor: Tom Litting