Gold Price Forecast: Higher as Weaker Dollar Boosts Demand

Highlights

• Gold prices increase due to weaker U.S. dollar and Fed nearing end of tightening cycle.
• Gold viewed as a safe haven against global growth concerns and market uncertainty.
• Investors closely monitoring Fed’s monetary policy and its impact on gold prices.

Overview

Comex Gold prices inched up on Tuesday as the U.S. dollar hovered near a one-year low, making the precious metal more affordable for holders of other currencies. Meanwhile, traders eagerly awaited retail sales data from the United States, seeking insights into its potential impact on the U.S. Federal Reserve’s approach to monetary tightening.

Fed Nearing End of Tightening Cycle

While the upcoming Fed meeting may temporarily dampen gold’s appeal, it is worth noting that the Fed is nearing the end of its tightening cycle.Consequently, analysts expect a gradual decline in real yields in the near future, which will create a favorable environment for gold.

July Rate Hike Expected

According to interest rate futures, investors are pricing in another 25 basis points rate hike at the Fed’s July meeting. Moreover, rate cuts are anticipated to extend well into 2024. Fed Chair Jerome Powell and Governor Christopher Waller have both expressed the likelihood of additional rate increases. Higher interest rates also reduce the opportunity cost of holding gold, as it does not yield interest.

Yellen Sees No US Recession, Goldman Sachs See 20% Chance

In light of these factors, many investors view gold as a risk-off hedge against slowing global growth or any market event that instigates a risk-off sentiment. Treasury Secretary Janet Yellen and Goldman Sachs’ chief economist, Jan Hatzius, have both expressed optimism regarding the U.S. economy, with Hatzius revising the probability of a recession within the next 12 months down to 20%.

ECB, BOE Still on Tightening Path

While the U.S. is undergoing a gradual tightening phase, investors anticipate that the ECB and the BOE will further their rate-hike cycles to combat inflation. In June, inflation stood at 5.5% and 8.7% for the European Central Bank and the Bank of England, respectively.

RBA Maintaining Restrictive Stance

Additionally, the Reserve Bank of Australia maintained a restrictive stance, opting to keep interest rates unchanged this month. Furthermore, the release of weak Chinese economic data on the previous day continues to weigh on investor sentiment.

Short-Term Forecast:  Fed Outlook, US Dollar Set the Tone

In summary, gold prices have experienced a slight increase due to a weaker U.S. dollar and the evolving monetary policy outlook of the Federal Reserve. Gold is poised for potential gains as the Fed nears the end of its tightening cycle and expectations of lower real yields emerge. Moreover, investors consider gold a safe haven against global growth concerns and other risk-off market events. As central banks worldwide respond to inflationary pressures, gold’s appeal may strengthen further. Investors are also closely monitoring retail sales data from the U.S. and its impact on market sentiment.

Technical Analysis

Comex Gold prices held steady as the market exhibited a neutral stance. The current price of $1962.50 remained unchanged from the previous close, indicating a lack of immediate momentum. Although the price was trading above both the 200-4H and 50-4H moving averages, the market remained below the main resistance area of $1980.00 to $1986.50. The 14-4H RSI reading of 57.55 suggested relatively stronger momentum but still below the overbought threshold.

With the market exhibiting a cautious bullish sentiment, investors should closely monitor price action around the support and resistance levels for further insights into the market’s future direction.