Gold Price Forecast: Climbing as Dollar, Yields Retreat Ahead Key US Inflation Data

Highlights

• Gold prices rise as dollar and bond yields pull back.
• Anticipation builds for U.S. inflation data and its impact on Fed’s rate-hike strategy.
• Higher interest rates and inflation figures could influence gold prices and rate expectations.

Overview

Comex gold prices experienced a boost on Wednesday as the dollar and bond yields pulled back. Investors eagerly awaited U.S. inflation data, which could provide valuable insights into the Federal Reserve’s rate-hike strategy. The decline in the dollar index by 0.2% to its lowest level since May 11 made gold more affordable for holders of other currencies. Additionally, benchmark 10-year U.S. Treasury yields slipped to their lowest point in nearly a week.

Gold Prices Gain Amid CPI Moderation

Renewed confidence in gold prices has emerged recently, primarily due to the widespread anticipation of the upcoming U.S. Consumer Price Index (CPI) reflecting a further moderation in pricing pressures. Economists surveyed by Reuters predict that the inflation data for June, scheduled for release at 1230 GMT, will show a rise of 3.1%, following May’s 4% surge. This projected figure would mark the lowest reading since March 2021. However, core rates are still expected to be at 5%, down from 5.3%, which remains considerably above the Federal Reserve’s target rate of 2%.

Rate Hike Probability and Inflation Outlook

According to CME’s Fedwatch tool, the market currently assigns a 92% probability of a 25 basis point rate hike by the Federal Reserve at their upcoming policy meeting on July 25-26.

One factor influencing gold prices is the impact of higher interest rates. This raises the opportunity cost of holding non-yielding bullion. Although a few Federal Reserve members suggested on Monday that the central bank was nearing the end of its monetary policy tightening, John Williams, the President of the Federal Reserve Bank of New York, reaffirmed on Tuesday that the central bank was not finished with raising its short-term rate target.

Considering that a 25 basis point increase is already widely expected and the overall trend of inflation heading downward, a significant surprise in the inflation figures could prompt a notable reassessment of rate expectations.

Short-Term Outlook:  Cautiously Bullish

In summary, gold prices rose as the dollar weakened and bond yields declined. The focus is now on the upcoming U.S. inflation data. Economists are expecting a more moderate increase compared to the previous month. While a rate hike by the Federal Reserve seems highly likely, any unexpected inflationary surprises could result in a shift in rate projections.

Technical Analysis

Comex Gold showed a minor decline as the current 4-hour price of $1942.70 dipped slightly below the previous close of $1943.80. The market sentiment is mixed, with the price below the 200-4H moving average of $1950.70, indicating a short-term bearish trend. However, it remains above the 50-4H moving average of $1929.00, suggesting a more neutral outlook. The 14-4H RSI reading of 63.71 indicates a positive sentiment, although not in the overbought range.

With the price within the main resistance area of $1943.20 to $1949.00, further upside movement may face challenges. Overall, the market sentiment is cautiously bullish with some hurdles ahead.