Expectations for the price of gold are on the agenda in the first days of every month. As the weekend approaches, investors have left behind a challenging and volatile month for the gold market. So, what’s on the table for the next? Let’s take a look at the details for gold.
Excited for the gold price?
May was a record month for gold price. The price of gold has reached almost record highs, rising above $2,080 per ounce. Therefore, there was great excitement in May. However, this enthusiasm was short lived. In the next 3 weeks of May, we experienced a sharp downtrend. Gold fell to its lowest level in two months on May 31. It was disappointing that gold failed to maintain its support and consolidate above $2,000 an ounce. But for some investors and analysts, the short-term correction we saw didn’t come as a big surprise. We’ve seen this pattern many times in the last 12 months. As a result, weak economic data fueled new recession fears. On the other hand, markets are starting to prevent the Federal Reserve from pricing rate cuts. At the beginning of the month, the markets were seeing the probability of a rate cut in June as about 17%. At the same time, markets were expecting interest rates to be around 100 basis points lower by the end of the year.
These dovish expectations completely contradict what central bankers are trying to convey to investors. Inflationary pressures eased. But it’s still too high for the central bank to signal any change in monetary policy. With less than two weeks until the Federal Reserve’s next monetary policy meeting, the truth is starting to emerge. The expectation of a easing of 100 basis points by the end of the year is almost completely priced in the market. At the same time, there is growing acceptance that there may be another rate hike this summer, even if the Federal Reserve leaves interest rates flat in June. Of course, this is very important for the gold price. There is a close relationship between the gold price and the interest rate.
Expectation in interest rates
This new change in interest rate expectations creates a challenging environment for the gold price. Because it supports the US dollar, which is trading at a three-month high. Moreover, summer is traditionally a weak seasonal period for the precious metal. Despite the challenging environment that could prevent gold from reaching all-time highs in the near term, there is still significant long-term support for the precious metal. The biggest factor that will continue to support prices is central bank demand. The World Gold Council released its highly anticipated annual Central Bank Gold Reserves Survey this week. About 24% of the 59 central banks surveyed between February 7 and April 7 said they plan to buy gold in the next 12 months. The ‘historical position’ of gold remains the most important reason central banks hold gold. That’s why 77% of respondents say it’s extremely or somewhat relevant.
A clear message from analysts is that central bank demand has completely transformed the market. Physical demand directly means a rise for the gold price. Therefore, the developments provide solid support and value for official sector investors. The survey also showed why investors should pay attention to central bank gold demand. As a result, central banks buy gold for the same reason investors do. Central banks want to diversify their assets, protect the purchasing power of currencies and hedge against economic risks. These are all problems that everyone in the world is facing. It also applies to the gold price. On the other hand, the problems are expected to get worse. The most significant risks remain a recession that gets closer every time the Federal Reserve raises interest rates. cryptocoin.com Although gold is in a tough environment when we look at it from a global perspective, the only suggestion I keep hearing from analysts is to strategically establish a position. After all, I think this is the time when you want to take advantage of low prices while you still can.
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