State Street cuts odds of gold hitting $5,500 as Fed hawkishness grows

State Street Investment Management has lowered the probability of gold reaching $5,500 an ounce to 60%, down from 70%, citing rising bond yields and a stronger U.S. Dollar. The firm now forecasts gold will trade between $4,750 and $5,500 by the end of the first quarter of 2027, while assigning a 35% chance to a bearish scenario where prices remain between $4,000 and $4,750 for the next six to nine months.

The cautious outlook follows a 6.3% drop in gold prices in September, driven by the Federal Reserve's decision to raise interest rates by 25 basis points. Market expectations have shifted sharply, with investors now pricing in an additional 3.3 rate hikes over the next nine months, compared to just 1.5 hikes expected at the end of August. This shift has pushed the U.S. dollar to a two-month high, increasing the opportunity cost of holding non-yielding assets like gold.

Despite technical headwinds, including gold trading below its 50-day and 200-day moving averages, investment demand remains robust. U.S.-listed gold-backed exchange-traded funds attracted $11.7 billion in inflows during the third quarter, including $3.7 billion in September. State Street analysts noted that these inflows suggest investors are using gold as a strategic monetary hedge and portfolio diversifier amid uncertainty over the Federal Reserve's monetary policy and potential stagflationary conditions.

Read the full story at kitco.com.