The world gold market has experienced an unfavorable trading week as expectations for US monetary policy have changed significantly in just a few days.
At the beginning of the week, spot gold prices once increased sharply from the 4,200 USD/ounce range to over 4,380 USD/ounce thanks to safe-haven demand and expectations that cooling geopolitical tensions would push energy prices down. However, this upward momentum quickly reversed after the June policy meeting of the US Federal Reserve (Fed).
Although keeping interest rates unchanged in the 3.50% – 3.75% range, the Fed is sending a tougher message on inflation. Many Fed officials believe that the possibility of raising interest rates before the end of the year still needs to be considered if price pressures have not decreased as expected.
This message caused the USD to rise to its highest level in nearly a year, while US bond yields simultaneously went up. These are factors that often disadvantage gold because the precious metal does not bring yields.
By the end of the week, spot gold prices retreated to around 4,150 USD/ounce, 220 USD/ounce lower than the peak set in the middle of the week. This is also the third consecutive week of decline for the gold market.
According to experts, the developments of gold next week will largely depend on the market re-evaluating the monetary policy outlook of the Fed under Chairman Kevin Warsh.
Mr. Tim Waterer - Chief Analyst at KCM Trade - said that the market is no longer focused on the possibility of interest rate cuts but has shifted to assessing the risk of the Fed continuing to tighten policy.
Meanwhile, data from the FedWatch tool shows that investors are increasing bets on the possibility of the Fed raising interest rates in the last months of the year. This is the reason why short-term speculative cash flow has withdrawn from the gold market recently.
Not only the Fed, US economic data released next week is also considered a factor that could create major fluctuations for precious metals. The focus will be on the Personal Consumption Expenditure (PCE) index - an inflation measure that the Fed is particularly interested in - along with PMI surveys on manufacturing and services.
If data shows that the US economy still maintains good resilience and inflation has not decreased significantly, high interest rate expectations may continue to put pressure on gold.
However, many financial institutions have not given up their positive views on precious metals in the long term. The gold buying activity of central banks, the trend of foreign exchange reserve diversification and concerns related to US public debt are still considered important supporting factors.
Analysts believe that the 4,000 USD/ounce mark continues to be a key psychological support zone for the market. If this threshold is maintained, gold may attract bottom-fishing buying when entering the new trading week.
After two weekend days off, the gold market will reopen on Monday morning with a rather cautious sentiment. Investors are waiting to see if the precious metal can stabilize again after the shock from the Fed or selling pressure will continue to prevail in the short term.
