World gold prices closed the trading week in red as investors continued to assess the impact of tensions in the Middle East and the monetary policy outlook of the US Federal Reserve (Fed). Despite repeatedly recovering above the 4,100 USD/ounce mark, the precious metal has not yet created momentum to escape the prolonged fluctuation zone in recent weeks.
Closing the last trading session of the week, spot gold prices fell 0.5% to 4,108.45 USD/ounce. During the week, there were times when prices retreated below 4,080 USD/ounce before narrowing the decline.
It is noteworthy that tensions between the US and Iran no longer create a strong supportive effect on gold as in previous periods. Airstrikes and negotiations between the two sides continue to increase concerns about the risk of disruption of energy supply through the Strait of Hormuz. However, instead of boosting safe-haven demand, the market focuses more on the possibility that rising oil prices will push inflation up.
This makes expectations about the Fed's monetary policy continue to be a factor dominating the developments of gold. Minutes of the June meeting showed that some Fed members still left open the possibility of continuing to raise interest rates if inflationary pressure persists. Although the possibility of raising interest rates in the short term has decreased compared to the beginning of the week, the market still believes that the Fed will maintain tight monetary policy for a longer time.
Developments in the financial market also reflect the cautious sentiment of investors. Data from the US Commodity Futures Trading Commission (CFTC) shows that hedge funds and money managers continued to cut net buying positions for gold in the week ending July 7. Meanwhile, US government bond yields remained high and the USD has not weakened strongly enough to create momentum for a new rally of precious metals.
After a period of strong fluctuations from the end of February to now, gold prices are currently mainly fluctuating in the accumulation zone. Each recovery phase quickly faces profit-taking pressure, while deep declines also attract bottom-fishing buying power around the threshold of 4,000 USD/ounce. This development shows that the market is still waiting for a strong enough catalyst to establish a new trend.
In the short term, the focus of attention will shift to a series of important US economic data in the coming week, including the consumer price index (CPI), producer price index (PPI), retail sales and the number of initial jobless claims. These will be important bases for the market to assess inflation prospects and adjust expectations for the Fed's monetary policy.
If data shows that inflation continues to remain high, the possibility of the Fed holding interest rates higher for longer may put more pressure on gold prices. Conversely, if price pressure begins to cool down, expectations for monetary policy may change, opening up opportunities for precious metals to improve their recovery momentum after weeks of struggling trading.
