Gold Price Forecast: Easing Amid Stronger Dollar Despite Anticipated Fed Pause

Highlights

• Gold prices influenced by stronger dollar and speculation on Fed rate-hike stance.
• Recent U.S. economic data suggests potential pause in Fed interest rate hikes.
• Lower interest rates and reclaiming $2,000 level may support gold prices.

Overview

Comex Gold prices are easing from a 1-1/2-month high reached in the previous session, influenced by a marginally stronger dollar. However, investors continue to speculate that recent U.S. economic data supports the argument for the Federal Reserve to pause its rate-hike stance. The dollar index rebounded from a one-year low, making gold relatively more expensive for holders of other currencies. Concurrently, benchmark Treasury yields declined for the second consecutive day.

At 06:55 GMT, Comex Gold is trading $1977.00, down $4.70 or -0.24%.

Prices Influenced by Yields, Dollar

Gold had surged over 1% on Tuesday, reaching a more than one-month high, benefiting from a weaker dollar and lower Treasury yields. Market participants interpreted the recent U.S. economic data as a sign that the Fed may pause its interest rate hikes.

Slower Retail Sales Suggest Less-Hawkish Fed

Despite the positive sentiment surrounding gold, U.S. retail sales in June rose less than expected, disappointing economists’ forecasts. However, consumer spending remained solid, adding to the notion of a less hawkish Federal Reserve by the end of the year, which could support gold prices. Conversely, if the central bank takes a different approach, prices may fall towards the $1,900 range.

Fed to Maintain Hawkish Stance

Although a 25 basis-point rate hike during the Fed’s upcoming July 26 meeting is widely anticipated, the central bank is expected to maintain its hawkish stance, presenting a challenge for gold’s upward trajectory. A group of 106 economists polled by Reuters suggests that the rate hike in July could be the final increase of the current tightening cycle.

Lower interest rates contribute to reducing the opportunity cost of holding non-yielding bullion. To gain further confidence from buyers, gold prices may need to reclaim the psychologically significant level of $2,000.

In other news, China announced its plans to stabilize growth in various sectors, including auto and steel, as these industries encounter challenges such as insufficient demand and declining revenues.

Short-Term Outlook:  Fed Dependent

In conclusion, gold prices experienced a slight decline from recent highs due to a modestly stronger dollar. However, investors remain hopeful that the Federal Reserve will take a more dovish approach based on recent U.S. economic readings. The upcoming rate hike is anticipated to be the last in the current tightening cycle. Lower interest rates could support gold prices, and a reclaiming of the $2,000 level may bolster buyer confidence. Additionally, China’s efforts to stabilize growth in key sectors could impact market dynamics.

Technical Analysis

Comex Gold is experiencing a slightly downward movement in the short term, with the current price of 1977.90 being lower than the previous close of 1981.70. However, the market sentiment remains bullish as the price is above both the 200-4H and 50-4H moving averages. The 14-4H RSI at 65.40 indicates stronger momentum.

The main support area is between 1900.60 and 1908.50, while the main resistance area ranges from 1980.00 to 2000.50. With the price trading near the upper end of the resistance area, caution is advised, but overall, the market sentiment for Comex Gold remains bullish.

While a failure to overcome resistance is likely to lead to lower prices, we believe the market will be well-supported on any weakness and we do not expect to see a change in trend.