Gold Prices Forecast: Will China Stimulus and Rate Cut Hopes Persist?

Gold Surges with Support from China Stimulus

Gold prices ended the week on a high note, driven by China’s robust stimulus measures and a favorable U.S. inflation report. The precious metal marked its second consecutive weekly gain, highlighting increased investor confidence. The announcement of “historic” steps by China to stabilize its property sector, along with renewed hopes for U.S. interest rate cuts, played a significant role in this bullish trend.

Last week, XAU/USD settled at $2414.715, up $54.20 or +2.30%.

China’s Stimulus Boosts Market Confidence

China, a key consumer of gold and industrial metals, unveiled substantial measures to address its struggling property market. The Chinese government introduced a package that included 1 trillion yuan ($138 billion) in funding and eased mortgage rules. Local governments were also instructed to buy apartments, aiming to prop up the sector, which had significantly impacted China’s economy.

These initiatives were welcomed by the market, leading to a surge in gold prices. The CSI 300 Real Estate index jumped 9.1% following the announcement. Analysts viewed these measures as a strong signal of government intervention to support the property market, a major driver of economic activity in China.

Record High Gold Prices in London

The London Bullion Market Association (LBMA) reported a record high for gold, with prices closing at $2402.60 per troy ounce. This milestone reflects the increased demand for gold as a safe-haven asset amidst global economic uncertainties. The market’s response indicates strong investor sentiment towards gold, driven by expectations of continued support from central banks and favorable economic policies.

US CPI Data and Rate Cut Expectations

In the United States, consumer inflation data for April came in below expectations, fueling hopes for interest rate cuts by the Federal Reserve. The Consumer Price Index (CPI) rose by 0.3% in April, down from 0.4% in the previous months, signaling a cooling domestic demand. This data supported market speculation that the Fed might start cutting rates as early as November, enhancing the appeal of non-yielding assets like gold.

Mixed Signals from the Federal Reserve

Federal Reserve officials have adopted a cautious stance, with some expressing satisfaction with the progress on inflation, while others remain vigilant. Fed Chair Jerome Powell highlighted the mixed nature of the CPI data but remained optimistic about achieving the 2% inflation target. Despite this, the market perceives a dovish tilt from the Fed, increasing the likelihood of rate cuts.

Weekly Forecast

The outlook for gold remains bullish as traders anticipate continued support from central banks and favorable economic policies. The Fed’s potential rate cuts, combined with robust stimulus measures from China, are likely to keep gold prices elevated.

Bullish traders could run into resistance at $2432 and $2450 so be careful chasing the rally. With support around $2354, buying on dips is still the preferred strategy, with the potential for gold to test the $2500 mark in the near future, given the current upside momentum.