Gold Price Forecast: Capped by Stronger Dollar, Rate Hike Expectations

Highlights

• Decline in gold prices due to stronger U.S. dollar and potential rate hikes.
• Potential support for gold as bargain hunters enter the market.
• Expectations of a rate hike in July create uncertainty for gold investors.

Overview

Comex gold prices experienced a slight decline in early Asian trade as a stronger U.S. dollar and the possibility of more interest rate hikes by the Federal Reserve impacted the appeal of bullion. However, there are indications that the pullback in prices could attract bargain hunters, potentially supporting gold in the near term.

Stagnant Consumer Spending Favors Gold Rebound

While U.S. consumer spending remained stagnant in May, suggesting that the Fed’s rate hikes to curb inflation were gradually taking effect, the core PCE price index, which excludes food and energy prices and is the Fed’s preferred measure of inflation, saw a 4.6% year-on-year increase. These conditions provide a favorable environment for gold to extend its rebound from the $1,900 area.

Anticipated Rate Hike Deters Gold Investors

Investors are anticipating a 25 basis points rate hike in July. They also expect rates to remain in the range of 5.25% to 5.5% before declining in 2024. The prospect of higher interest rates deters investment in non-yielding assets like gold.

Rate Hike Expectations Weigh

In June, bullion ended 2.2% lower, and for the second quarter, it recorded a 2.5% decline, primarily driven by expectations of a longer path of Fed rate hikes. However, there is a possibility that gold could find support in the $1,900-$1,889.50 range, with bullish attempts to target highs around $1,943-$1,949.

Strong Dollar Also Capping Gains

The movement of the US Dollar is also playing a role in the gold market, with the dollar index edging up and nearing a two-week high. A stronger dollar makes gold more expensive for holders of other currencies.

US Data Releases Impact Fed Decisions

Looking ahead, a data-heavy week in the United States includes the U.S. Labor Department’s job openings and labor turnover survey, the monthly payrolls report, and the release of the minutes from the June 13-14 Fed meeting. These releases may provide further insights into the economic conditions and potential impacts on the Federal Reserve’s decision-making.

Bargain Hunters May Be Shifting Momentum

In summary, gold prices are being influenced by various factors, including the strength of the U.S. dollar, the prospect of interest rate hikes by the Federal Reserve, and economic data releases. Bargain hunters and support levels may contribute to short-term rebounds, but the longer-term trend will be shaped by market sentiment and the Fed’s monetary policy decisions.

Technical Analysis

Comex Gold is currently trading at 1926.00, slightly higher than the previous close. The price is below the 200-4H moving average of 1959.50 and the 50-4H moving average of 1928.40, indicating a bearish sentiment. The 14-4H RSI reading of 53.49 suggests a neutral market sentiment.

The main support area is between 1889.50 and 1899.80, while the main resistance area is between 1943.20 and 1949.00. With the current price within these ranges, the market sentiment for Comex Gold is relatively neutral, with a bearish bias in the long term. Bullish counter-trend traders are eyeing a potential upside breakout over the 50-4H moving average.