Gold Price Forecast: Underpinned by Easing Fed Interest Rate Hike Expectations

Highlights

• Gold prices hit highest since March 2022
• Weaker economic data slows interest rate hike expectations
• Gold is seen as a hedge against inflation and economic uncertainty

Overview

Gold prices hit their highest level since March 2022, rising 0.1% to $2,044.90 per ounce as weaker economic data from the US raised bets that interest rates will rise more slowly.

At 12:00 GMT, June Comex gold futures are trading $2040.20, up $2.00 or +0.10%.

Weaker prospects for interest rates decrease the opportunity cost of holding non-yielding gold, which is also a hedge against inflation and economic uncertainty.

The weaker economic data has shifted the emphasis from “inflation-busting to saving the wider economy,” said one analyst.

On Tuesday, gold rallied 2% after US job openings in February dropped to their lowest level in nearly two years.

Gold Prices Rise to Highest Since March 2022

The dollar index edged higher but remained near two-month lows, making bullion cheaper for buyers holding other currencies. The mood in the gold market has improved, with short-term speculative traders and trend followers returning.

A Reuters poll found that while the eurozone recovery gathered pace last month, the upturn was uneven, and the European Central Bank could raise rates by 25 basis points at its May, June, and July meetings.

Fed’s Mester Forecasts More Interest Rate Hikes Despite Recent Banking Sector Troubles

Federal Reserve Bank of Cleveland President Loretta Mester said on Tuesday that the US central bank likely has more interest rate rises ahead amid signs that recent banking sector troubles have been contained.

The Fed raised rates by a quarter percentage point to between 4.75% and 5% in late March, and officials penciled in a single additional rate rise for this year.

Mester sees monetary policy moving “somewhat further into restrictive territory this year, with the fed funds rate moving above 5% and the real fed funds rate staying in positive territory for some time.”

Looking Ahead…

On Wednesday, traders are expecting the latest ADP private payrolls report and the ISM Services Index to release.

Technically Speaking…

Today’s rally stopped short of the April 18, 2022 main top at $2045.80. This is a potential trigger point for an acceleration to the upside with the next major target coming in at $2097.20.

A close under $2038.20 will be a sign of weakness, but not necssarily a change in trend. The main trend will change to down on a move through $1965.90.