Gold Price Forecast: Outlook Remains Positive ahead of Fed’s Rate Hike Pause

Highlights

• Gold prices decline as investors expect a pause in interest rate hikes.
• Post-CPI rally pauses, potential retracement in the range of $1,940-$1,950.
• Market sentiment suggests gold could rise with Fed’s rate hike pause.

Overview

Comex gold prices experienced a slight decline on Monday as the dollar made modest gains, although many investors anticipated the U.S. Federal Reserve would soon ease off on interest rate hikes. The dollar’s position above its April 2022 lows contributed to gold becoming relatively more expensive for holders of other currencies.

Gold’s Rally Pauses, Retracement Potential

Last week, gold reached its highest level since June 16 after data revealed that U.S. consumer prices in June had the smallest annual increase in over two years. This led to speculation that the Federal Reserve might soon conclude its cycle of rate hikes. As a result, the yellow metal enjoyed a boost as the anticipation of further rate hikes diminished due to a decline in inflation. However, gold prices were capped on Friday as yields began to tick up.

Gold’s recent rally, triggered by the post-CPI (Consumer Price Index) data, has momentarily paused, leaving room for a potential retracement in the range of $1,940 to $1,950. Despite this, gold managed to record its largest weekly gain since April, increasing by 1.65% by the end of Friday’s trading session.

Bullish Traders Anticipate Fed Pause

The current outlook suggests that gold prices will remain range-bound in the near term. If the Federal Reserve signals a halt to further interest rate increases, there is a possibility of further upward movement for gold.

While inflation levels remain high, market focus has shifted to the relative change in interest rates rather than the absolute level. If peak interest rate cycles are approaching, it could act as another supporting factor for gold, particularly in conjunction with central bank buying.

Next week, the market expects interest rate hikes from both the Federal Reserve and the European Central Bank. However, it is anticipated that the U.S. central bank will likely halt rate increases next year, while another hike is expected in Europe. Lower interest rates generally reduce the opportunity cost of holding non-yielding assets like gold.

In addition to these factors, China, one of the top consumers of gold, reported sluggish economic growth of 0.8% in the second quarter compared to a 2.2% expansion in the previous quarter. This has led market participants to anticipate that Chinese authorities may introduce further stimulus measures to support economic growth.

Short-Term Outlook:  Cautiously Bullish

Overall, while gold prices experienced a slight dip due to a stronger dollar, market sentiment suggests that the Federal Reserve’s potential pause on interest rate hikes and other supporting factors such as declining inflation and central bank buying could contribute to further upward movement for gold in the short term.

Technical Analysis

Comex Gold shows a bullish market sentiment as the current price of $1958.20 is above the previous 4-hour close, indicating a slight upward movement. The price is also trading above both the 200-4H moving average at $1950.80 and the 50-4H moving average at $1941.50, further supporting the bullish outlook. The 14-4H RSI at 54.96 suggests moderately positive momentum.

With the main support area at $1900.60 to $1908.50 and the main resistance area at $1980.00 to $1986.50, there is room for further upward movement. However, market conditions can change rapidly, so monitoring these indicators is recommended.