Gold's rally just cracked, but one private Swiss bank says it's not over

Core Viewpoint - Gold experienced its worst single-day drop in 12 years, ending a record-breaking rally, but the underlying supply-and-demand dynamics remain strong, even at overbought levels in the short term [1][2]. Supply and Demand Dynamics - Spot gold was trading around $4,140 per ounce, down from a record $4,381.21 per ounce, reflecting a significant price fluctuation [2]. - Prices have increased by as much as 60% as investors, including central banks and private funds, sought protection from inflation, fiscal deficits, and geopolitical risks, while supply remains constrained [3]. Central Bank Influence - Central banks have been steadily increasing their gold holdings since 2008, creating a higher price floor for gold [3]. - The demand from the official sector is seen as a stabilizing force for gold prices, with central banks likely to continue diversifying their reserve holdings in gold due to fiscal uncertainties and geopolitical risks [5]. Macroeconomic Factors - Gold's characteristics as a medium of exchange, unit of account, and store of value are particularly appealing in the context of high US government debt, which negatively impacts Treasuries [4]. - Macroeconomic and geopolitical uncertainties are expected to sustain further demand for gold, prompting analysts to raise their 12-month gold price target from $3,900 to $4,600 per ounce [6]. Investor Sentiment - Despite the recent drop, investor interest in gold remains strong due to ongoing inflation fears and global turmoil, with central banks expected to continue increasing their gold purchases [7].