Gold Price Forecast: Underpinned by Weaker Dollar as Investors Await US Inflation Data

Highlights

• Gold prices remain stable, benefiting from a weaker dollar and bond yields.
• Investors exercise caution as they await U.S. inflation data and its impact on the Fed’s policy direction.
• The gold market’s technical posture leans bearish, but a significant event may be needed to drive prices higher.

Overview

Comex Gold prices remained stable on Tuesday, benefiting from a weaker dollar and bond yields. Investors, however, displayed caution as they awaited U.S. inflation data that could impact the Federal Reserve’s policy direction. The dollar, nearing a two-month low due to expectations of lower rates, made gold more affordable for holders of foreign currencies. Benchmark U.S. yields hovered around Monday’s lows at 4.0018%.

Bullion has faced challenges recently, with prices declining over 7% since reaching near-record levels in early May. This downward trend is primarily due to investors revising their expectations of the Fed’s rate-hiking cycle coming to an end. Despite the support from a weaker dollar and yields, gold bugs have been reluctant to fully commit until the U.S. inflation report on Wednesday.

The technical posture in the gold market is currently mixed, depending on your time frame, but a significant event may be required to drive prices significantly higher. The recent employment report from the Labor Department revealed that the U.S. economy added the fewest jobs in 2-1/2 years in June. However, strong wage growth indicated persistent tight labor market conditions.

Traders Anticipating July Fed Rate Hike

According to CME’s Fedwatch tool, investors predict a 95% chance of the central bank raising rates in its July meeting into the 5.25-5.5% range. However, we could see rate cuts potentially occurring in 2024. Higher interest rates tend to diminish the appeal of bullion, which offers no interest.

The focus this week shifts to the U.S. Consumer Price Index (CPI) data scheduled for release on Wednesday. Market expectations, as per a Reuters poll, anticipate a 0.3% month-on-month rise in core CPI for June. Given the ongoing expectation of decelerating inflation, an unexpected upside surprise could trigger significant volatility and weigh on gold prices. Gold bulls are hoping for inflation to remain under control to justify a bullish breakout.

In conclusion, gold prices held steady amid a weaker dollar, while investors exercised caution ahead of the U.S. inflation report. The focus now shifts to the upcoming CPI data, with expectations of a rise in core CPI for June. The gold market’s technical posture remains bearish, but the prospect of a major event looms as a potential catalyst for significant price movement.

Technical Analysis

Comex Gold is showing slightly mixed sentiment as the current price hovers above the 50-4H moving average, indicating a mild bullish tone. However, it remains below the 200-4H moving average, suggesting slightly slight bearish sentiment. The 14-4H RSI falls within the neutral range, indicating potential for further upward price movement.

The market is currently in a consolidation phase between the main support and resistance areas. Essentially, it is lacking a clear bullish or bearish bias on the 4-Hour chart. Overall, the market is exhibiting a cautious tone as traders await further developments and a clearer directional signal in the Comex Gold.