World Gold Council Made Important Gold Forecasts!

Gold’s neutral price action in the first half of the year made it one of the best performing assets in the financial markets. There is still strong support for the precious metal. However, the World Gold Council (WGC) is warning investors for the second of the year. Also, analysts are assessing the relationship between gold and oil prices.

“Yellow metal caught in the middle of a tug-of-war”

The yellow metal is down 4% and tested long-term support at $1,730 earlier in the week. It then got off to a rough start. The precious metal has attracted some bargain hunters. But it remained below critical psychological levels. In its latest report, the WGC says gold remains in a tug-of-war between aggressive central bank tightening and increasing inflation pressures, stock market volatility and geopolitical uncertainty.

So far, investors are reacting more to the Federal Reserve’s commitment to raise interest rates aggressively to cool inflation. However, analysts at WGC note that there are still reasons for gold investors to remain optimistic that the market can withstand these headwinds. Analysts make the following assessment:

Most market participants still expect significant policy rate hikes. Some analysts argue that central banks may not tighten monetary policy as much as expected. Among the reasons are potential economic slowdowns that could cause contractions. But in some cases there is a shift from supply constraints to surpluses in the non-commodity consumer sectors.

“The opportunity cost of gold is attractive compared to other assets”

At the same time, interest rates and real interest rates are rising. However, the WGC insists that high inflation will eventually limit any major rise. In this context, he makes the following statement:

The precious metal has historically performed well in an environment of high inflation. Analysts state that in years when inflation is above 3%, the price of gold increases by an average of 14%. They say that during periods when the US CPI is above 5% year-on-year (currently ~8%), gold averaged about 25%.

The report also notes that despite higher real interest rates, gold’s opportunity costs remain attractive compared to other assets. Analysts point out that as market volatility increases, investors have little choice to hedge their capital. They also say that inflation-linked bonds have fallen 18% so far this year. They comment on the subject as follows:

High-quality government bonds have been a preferred safe-haven asset for the last 20 years due to low inflation and interest rates. But higher inflation weakens the attractiveness of government bonds as a diversifier.

28 tonnes of gold flowing from global ETFs

There is a relatively optimistic outlook for the precious metal in the second half. This came as products traded on the global gold-backed exchange saw their second-month exits in June. In a separate report released on Thursday, WGC said that 28.5 tons of gold came out of ETFs last month, after exiting 53 tons in May.

cryptocoin.comAs you follow, the Fed increased interest rates by 75 basis points last month. Under the leadership of the Fed, rising interest rates around the world continue to be the dominant factor in the gold market. Also, markets are looking for another 75 basis points move in July. Analysts express the following views:

Intense focus on future rate hikes and a stronger US dollar were the main headwinds for gold investment. With record inflation and rising government borrowing costs, Europe’s economic outlook is rather bleak. Despite this, the ECB stated that it will raise interest rates in July. This will be the first time in more than 11 years. So it suppressed the sentiment.

The relationship between gold and oil

The oil market managed to rise above $100 per ounce. According to some analysts, this will be good news for gold investors. Most analysts point out that the gold market is mostly at the mercy of the US dollar, which has risen to a 20-year high in an extraordinary uptrend. Weak oil prices, along with the strong US dollar, are not helping gold attract new bullish momentum.

The drop in oil prices helped to temporarily calm some fears that inflation pressures would continue to spiral out of control. This is a negative situation for the gold market. Looking forward, analysts do not have a clear consensus on where oil prices will go. One factor that could determine the future of gold and oil is whether the US and global economy will fall into recession. A recession would put pressure on oil prices and the entire commodity complex, which could put pressure on the yellow metal.

“When oil prices stabilize, gold traders will focus on them”

Senior technical analyst Jim Wyckoff also expects to see lower oil prices in the near term. This, in turn, could affect shiny metal prices. In this context, the analyst says:

On recession concerns, crude oil prices are on a downward trend. Gold will likely follow until oil prices stabilize and the downtrend ends. Historically high inflation has been supportive of metals. However, at the moment, fears of a recession and lower consumer and commercial demand for the metals are eclipsing their bullish direction. Once oil prices stabilize, gold traders will focus on other fundamentals such as geopolitics, inflation and economic data including central bank policies.

Ole Hansen predicts gold price will rise

However, Ole Hansen, head of commodities strategy at Saxo Bank, says slower growth will lead to lower oil consumption. However, he notes that the market still faces a supply problem. Hansen also does not see a strong relationship between gold and oil. The analyst adds that gold continued to rise throughout the year. Hansen comments:

The bright metal suffered from lower inflation expectations and a much stronger dollar. I predict that it will still rise higher due to geopolitical and financial risks. But we need to see industrial metals stabilize before we get our recovery hopes too high.

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