The Federal Reserve has signaled it wants to cut interest rates three times this year. Moreover, it showed that it would do so even if inflation remained above the 2% target. After that, he left everything open for gold. However, some market analysts say that gold will see a healthy correction in the coming week and in the near term.
Therefore, gold prices found good support!
Following the Fed’s monetary policy meeting on Wednesday, gold prices broke a record, rising above $2,220. However, cryptokoin.comAs you can see from , this rise was short-lived. Thus, the precious metal finished the week close to the neutral zone.
James Stanley, senior strategist at Forex.com, expects gold prices to eventually rise ahead of the Federal Reserve’s June monetary policy meeting, where the central bank is expected to begin its easing cycle. Because the Fed has signaled that it will reduce interest rates even if inflation remains high. The analyst notes that gold has found good support for this reason. In this context, Stanley makes the following statement:
The Fed had every opportunity to sound a more balanced note, but they didn’t. If you look at the data, there is no reason for the Fed to cut rates three times this year. There is no need for them to cut interest rates because the unemployment rate is the lowest I have ever seen in my life. The Fed’s failure to use a more balanced tone raises a lot of questions for me and is a red flag for the economy, which I think will continue to support gold.
According to the analyst, a short-term correction is possible
However, although James Stanley likes gold, he expects to see a correction in the near term. So he says investors should be cautious about chasing prices near record highs. The analyst shares the following assessment on this subject:
Gold wants to rise further, but I think a pullback would be healthy. For investors who were long gold at the beginning of the month, this could be a good place to take some profits so we could see a short-term correction.
James Stanley also looks at technical levels. The analyst says he is eyeing initial support at $2,146 as it is the December high. However, he adds that he would not be surprised if gold tests the $2,075 support, which represented a three-year resistance point before breaking in early March.
Gold needs more data to support current rally
Lukman Otunuga, head of market analysis at FXTM, says that although the Fed continues to signal a rate cut this year, the depth of the easing cycle will remain data dependent. He notes that gold needs to see more disappointing economic data in the coming weeks and months to support the current rally. In this context, the analyst makes the following statement:
Although the Fed has signaled three rate cuts in 2024, it’s all about economic data that could support or counter the argument for rate cuts. Gold bulls could be back on the scene if next week’s US data supports lower interest rates. However, bears are also waiting in ambush and looking for a new opportunity to reduce prices.
Despite the bullish outlook, Otunuga says the gold market “looks a bit tired” ahead of next week.
The gold price has definitely not reached its highest level yet!
A correction in gold prices is possible next week. However, other analysts say investors should continue to focus on the broader uptrend. Chief Investment Officer Naeem Aslam says that although gold has seen a strong rally this month in anticipation of the Fed’s easing cycle, there is still significant potential for higher prices. Aslam explains his views on this issue as follows:
We are certainly not at the peak in terms of the gold price. We think that the important factor is the Fed’s definition of the normal interest rate, that is, its target level. We think the process has begun as the Fed is sending a subdued signal that it needs to adjust to its pre-Covid levels. However, once they clear this out we would expect the gold price to rise.
Is it setting the stage for a bigger rally?
Gold’s technical price action represents a short-term risk. Therefore, the precious metal also faces some fundamental threats in the near term. David Morrison, senior market analyst at Trade Nation, says the renewed strength in the US dollar is creating a headwind for gold. The dollar closed Friday above 104 points, its highest level in the last four weeks. The analyst makes the following assessment:
Could this sudden strengthening of the dollar indicate that investors are less optimistic about a rate cut than the Fed? Maybe. But it also reflects how the latest round of central bank meetings has made clear that rate cuts will come from just about everyone. In fact, the Swiss National Bank has already taken action. This being the case, the US dollar became popular again as it became the cleanest shirt in the laundry basket. This shake-up of weak gold and silver holders could set the stage for a bigger rally. However, this may be wishful thinking if the dollar continues to strengthen.
Next week’s economic data
- Monday: New housing sales.
- Tuesday: Durable goods orders. Consumer confidence.
- Thursday: Weekly unemployment claims. US GDP. Pending home sales.
- Friday: Core PCE price index.
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