Gold Price Forecast: Supported by Diminishing Rate Hike Expectations

Highlights

• Gold prices poised for biggest weekly gain since April.
• Weakening dollar fuels demand for gold as rate hike expectations fade.
• Positive economic indicators and tight labor market add to gold’s bullish sentiment.

Overview

Comex gold prices are poised for their biggest weekly gain since April, surging to nearly a one-month high. The rally comes as markets revise down their expectations of further interest rate hikes in the United States, causing the dollar to plunge to its lowest level in over a year. This depreciation of the dollar makes gold more affordable for overseas investors, fueling demand and propelling the precious metal’s price upwards.

Slower PPI Growth Reduces Rate Hike Expectations

The recent data on U.S. economic indicators reinforces the shift in sentiment. U.S. producer prices barely rose in June, indicating a disinflationary phase in the economy. Lower-than-expected inflation prints and subdued core producer prices have reduced the likelihood of aggressive interest rate hikes from the Federal Reserve. Economists polled by Dow Jones expected a 0.2% increase in the June producer price index, but the actual figure came in at a weaker-than-expected 0.1%.

CPI Dip Reflects Softening Inflationary Pressures

Furthermore, the consumer price index for June registered an annualized rate of 3%, the lowest level since March 2021 and below consensus expectations. These figures reflect a softening in inflationary pressures, further dampening the case for immediate rate hikes.

Tight Labor Market

In a surprising turn of events, the number of Americans filing new claims for unemployment benefits declined last week, indicating the continued tightness of the U.S. labor market. This positive data adds to the mixed signals surrounding the economy and the appropriate course of action for the Federal Reserve.

All Eyes on July FOMC Meeting

While Federal Reserve Governor Christopher Waller still advocates for more rate hikes this year, the sentiment among investors has shifted. Expectations of further increases have dwindled, with the focus now turning to the upcoming July meeting of the Federal Open Market Committee.

However, if the Fed does hint at additional rate hikes, it may create nervousness among gold investors. Higher interest rates increase the opportunity cost of holding non-yielding bullion, potentially prompting some investors to reconsider their positions.

Could Reach $2000

Looking ahead, gold’s upward momentum seems intact, with experts suggesting that the next major levels could be between $1,988 and $2,000. The near-term outlook has shifted higher, providing a bullish sentiment for gold prices.

Short-Term Outlook:  Weaker Dollar Drives Bullish Outlook

In conclusion, gold prices are benefiting from the weakening dollar and diminishing expectations of aggressive interest rate hikes in the United States. Recent economic data points to a disinflationary phase, adding to the case for a more dovish approach from the Federal Reserve. While uncertainties persist, gold investors remain optimistic, eyeing the potential for further gains in the near term.

Technical Analysis

Comex Gold shows slightly bullish sentiment as the current price of 1960.80 remains above the 200-4H moving average at 1951.10 and the 50-4H moving average at 1938.30. The 14-4H RSI reading of 62.17 indicates strong bullish sentiment.

The main support area is identified between 1900.60 and 1908.50, while the main resistance area lies between 1980.00 and 1986.50. The current price falls within striking distance of the main resistance area, suggesting a potential barrier ahead. Although the market is slightly bullish based on the provided analysis, caution is advised as the price approaches resistance and overbought Relative Strength.