Price of Gold Fundamental Daily Forecast – Global Rate Hikes Expected to Drive Prices Even Lower

Gold futures are edging higher early Tuesday as U.S. Treasury yields softened overnight and the U.S. Dollar pulled back from a two-year high. Nonetheless, expectations of interest rate hikes in the United States, Europe, Australia, and New Zealand are dampening demand for bullion.

At 09:21 GMT, August Comex gold futures are trading $1850.40, up $6.70 or +0.36%. On Monday, the SPDR Gold Shares ETF (GLD) settled at $171.80, down $0.78 or -0.45%.

Global Rate Hike Expectations Weighing on Gold

Gold bulls fear higher interest rates because they lower demand for the non-interest-bearing, non-yielding precious asset.

Overnight, the Reserve Bank of Australia (RBA) raised its benchmark interest rate. The Reserve Bank of New Zealand is also expected to hike its Official Cash Rate later in the Month.

Furthermore, the Federal Reserve is expected to raise its benchmark next week. On Thursday, the European Central Bank (ECB) is widely anticipated to lay out its plans for higher rates on Thursday.

Reserve Bank of Australia:  Raises Rates above Market Expectations

The Reserve Bank of Australia (RBA) on Tuesday raised interest rates the most in 22 years and flagged more tightening to come as it battles to restrain surging inflation, stunning markets and sending bond yields flying, according to Reuters.

Wrapping up its June policy meeting, the RBA lifted its cash rate by 50 basis points to 0.85%, surprising investors who had wagered on a move of either 25 or 40 basis points.

Reserve Bank of New Zealand:  Expected to Take More Aggressive Tightening Path

The Reserve Bank of New Zealand (RBNZ) delivered its fifth straight interest rate hike on May 24 and signaled a much more aggressive tightening path as authorities seek to reduce the second-round effects of runaway inflation.

The RBNZ raised the official cash rate by 50 basis points to 2.0%, a level not seen since November 2016. Crucially, a hawkish RBNZ now projects the cash rate will double to 4.0% over the next year and remain there until 2024.

European Central Bank:  July Rate Hike Expected

The European Central Bank (ECB) will likely decide on Thursday to end its stimulus program in July, and could announce an interest rate hike at the same time. In May, ECB President Christine Lagarde opened the door to a 50 basis point hike next month.

Federal Reserve:  Traders Betting on 50 bps Rate Hikes in June and July

The U.S. Federal Reserve is on track for half point interest rate increases in June and July. However, the strength of the economy and last week’s U.S. jobs report boosted expectations of continued tightening by the U.S. central bank.

Short-Term Outlook

Friday’s U.S. consumer inflation report (CPI) is expected to offer further clues on the pace of U.S. rate increases.

The CPI is expected to have gained 0.7% in May, compared with 0.3% in April, with annual inflation unchanged at 8.3%, according to the median estimate of economists polled by Reuters.

While some believe higher inflation would be bullish for gold prices, a jump in inflation in this report could actually be bearish for gold because it could boost expectations that the Fed will continue to aggressively hike rates as it tries to bring down price pressures that are rising at the fastest pace in 40 years.