Expectations for a possible rate hike by the Federal Reserve move with mixed macro data. Most analysts expect a pause in June. But he’s not ignoring more rate hikes this summer. So what does this mean for gold? Let’s take a look at our article.
The latest situation in the gold market
August Comex futures found solid support at $1,960 an ounce. Therefore, the gold price closed the week up 0.4%. However, analysts expect the Fed to increase interest rates further. He also cites the risks of the rise in the US dollar on the precious metal. Therefore, they expect less bullishness on gold in the short term. Daniel Ghali, senior commodity strategist at TD Securities, makes a statement on the subject. He uses the phrase very fragile for gold. Now it’s time to decide on the interest rate.
The June 13-14 meeting of the FOMC and the interest rate decision will be a very important factor for the gold price. Accordingly, it is expected that the Fed will keep interest rates unchanged at 5.25% next week. It is also likely to allow the lagged effects of monetary policy tightening over the past 15 months to kick in. The CME FedWatch Tool is pricing in a 72% probability of stalling at the time of this writing. Should the Fed suspend interest rate hikes, it will be the first ‘pause’ decision since January 2022.
Rising prospects
OANDA senior market analyst Edward Moya said a pause would be bullish for the gold sector. “For gold, we will see more optimism that the Fed is done. The Fed is likely to interrupt the tightening cycle. In addition, the updated forecasts reflect optimism that inflation will come much closer to the target. This will be good news for gold bulls. Gold volatility will rise as prices can break out of the $1,950 to $2,000 trading range.” says.
On the other hand, Ghali states that a hawkish surprise could mean a hard sell for gold. Recent positions hinted at a surprise hike for next week. In addition, a group of money managers is caught vulnerable to this increase. Falling below $1,940 per ounce will be an important development. Markets are citing the Bank of Canada’s decision to suspend interest rate hikes for two consecutive meetings in the spring and then raise rates again at its June meeting. In this context, he describes a possible pause in June as a “hawkish decision”.
Developments to be followed by the market
Capital Economics North America chief economist Paul Ashworth expects the Fed to pause the rate hike. However, he thinks the Fed will raise interest rates again after the break. In addition, the durability of employment data will be an important indicator for the gold price. Because, according to the Fed employment figures, it is likely to go on a new interest rate hike. The big macro event that everyone is watching closely is the US May CPI report, which will be released on Tuesday, the day before the Fed’s interest rate announcement. Some analysts think the Fed’s decision is tied to this inflation report. “If core inflation comes in at 0.6% monthly instead of the consensus expectation of 0.5% or 0.4% monthly, the odds will likely shift in favor of an increase on Wednesday, as the measurement will be heading in the completely wrong direction,” said James Knightley, ING chief international economist.
Frank Cholly, senior market strategist at RJO Futures, says the gold market has bottomed out at $1,950 an ounce. He said that this level also acts as a solid support. “A lot of things are tied to the dollar right now,” Cholly said. The August contract will need gold above $2,000 to give more confidence.” says.
Standard Chartered precious metals analyst Suki Cooper said that for the summer, gold could be poised for a slow down move as investor appetite lacks faith in a seasonally slow period for consumption. “The gold market is in a comfortable range,” Cooper said on Friday. There are risks that will seriously increase prices. However, by the end of the year, risks point to an increasingly downside situation. We believe the base is well supported. Therefore, prices are more likely to slide down.” she says. As Cryptokoin.com previously mentioned, Standard Chartered estimates that gold will average $1,975 per ounce in the second quarter and $1,925 in the third quarter.
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