Gold Price Forecast: Set for Worst Quarter Amid Rising Interest Rate Expectations

Highlights

• Gold poised for worst quarter since September, nearing 3-1/2 month lows.
• Robust data releases and hawkish comments fuel expectations of sustained higher interest rates.
• Strong labor market indicators and GDP growth support resilient U.S. economy.

Overview

Gold prices are poised to experience their worst quarter since September of the previous year, as they hover near 3-1/2 month lows. This decline follows a series of robust data releases and hawkish comments from central bank officials, fueling expectations of sustained higher interest rates in the U.S. market. Gold briefly dipped below the crucial $1,900 level on Thursday, signaling a resilient U.S. economy supported by strong labor market indicators and solid gross domestic product (GDP) growth in the first quarter.

Strong US Economy, Recession Avoided

The U.S. economy has displayed a range of indicators suggesting a likely avoidance of a recession. Last week, jobless claims witnessed the most significant decline in 20 months, underscoring the strength of the labor market, which also contributed to the resilience of the GDP. As a result, market sentiment has completely ruled out rate cuts for 2023, with most U.S. central bank policymakers anticipating the need for at least two interest rate hikes by year-end, according to Fed Chair Jerome Powell’s remarks on Thursday.

Interest Rate Hikes Weigh on Gold

The impact of interest rate hikes weighs heavily on gold prices due to their tendency to boost bond yields, subsequently increasing the opportunity cost of holding non-yielding bullion. Consequently, gold is set to experience its first quarterly decline in three, with a 3% decrease recorded thus far this quarter and month.

PCE Inflation Data on Tap

Market participants now eagerly await the release of personal consumption expenditures (PCE) data for May, particularly core PCE, which is projected to reach 4.7% on a year-on-year basis—well above the Federal Reserve’s 2% target. The market is currently digesting this narrative. Wherein core inflation remains persistent in the economy, justifying the anticipation of higher rates for an extended period.

Bearish Tone at End of Quarter

In conclusion, gold prices are facing significant downward pressure, poised for their worst quarter in several months. The anticipation of sustained higher interest rates is driving the bearish sentiment. Other factors include strong economic indicators, and the potential for elevated core inflation. As the market awaits further economic data, the trajectory of gold prices will be closely monitored.

Technical Analysis

Comex Gold shows a slightly bearish bias. The current price of 1914.10 hovers below the previous close and both the 200-4H and 50-4H moving averages. With a reading of 39.59, the 14-4H RSI indicates a mildly bearish sentiment.

The main support area lies between 1889.50 and 1899.80, while the main resistance area ranges from 1943.20 to 1949.00.

As the current price falls within these levels, the market sentiment remains neutral to slightly bearish. Traders should closely monitor price action and potential developments in support and resistance for further insights into the market’s direction.