Gold prices continue to face pressure as the market increases expectations that the US Federal Reserve (Fed) will raise interest rates by the end of this year, although the cooling of oil prices after the temporary peace agreement between the US and Iran has partly helped limit the decline of precious metals.
Spot gold prices once rebounded to around 4.328 USD/ounce in the June 17 session after the US and Iran signed a temporary peace agreement. However, this recovery was not enough to reverse the weakening trend of gold in recent weeks as the market focused more on the monetary policy outlook of the Fed.
According to experts, the drop in oil prices after the US-Iran agreement has helped ease concerns about inflation and reduce pressure from global energy costs.
Mr. Christopher Wong – Strategy at OCBC said that the decrease in oil prices still has some positive impacts on gold, but the short-term outlook for the precious metal is becoming more complicated after the latest Fed meeting.
Lower oil prices still support gold to a certain extent. However, the results of the Fed meeting make the short-term outlook more cautious, although medium and long-term supporting factors are still present," he said.
In the recent policy meeting, the Fed kept interest rates unchanged but sent a tougher signal on inflation. Fed Chairman Kevin Warsh emphasized that price stability will continue to be the top priority of the US central bank.
This message caused the market to strongly adjust monetary policy expectations. Investors now believe that the possibility of the Fed raising interest rates at the end of the year has increased significantly compared to before the meeting.
According to Mr. Bill Adams – Chief Economist at Fifth Third Commercial Bank, the Fed's approach has changed significantly.
The message from the policy statement and new forecasts shows that the Fed's focus has shifted from the story of interest rate cuts to the possibility of raising interest rates if inflationary pressure persists," he said.
High interest rates are often an unfavorable factor for gold because precious metals do not yield yields. When bond yields and interest rates increase, the opportunity cost of holding gold also increases.
Mr. Ryan McKay - Senior Commodity Strategist at TD Securities said that the market largely reflected expectations of the Fed raising interest rates on gold prices.
The short-term trend of gold still leans towards negativity. For market sentiment to change significantly, there needs to be a significant adjustment in the Fed's policy outlook," he said.
Despite short-term pressure, many financial institutions still believe that long-term supporting factors for gold have not changed, including buying demand from central banks, the trend of diversifying reserves away from the USD and the demand for gold hoarding in Asia.
In the short term, investors will continue to monitor inflation, US bond yields and new signals from the Fed to assess whether gold can maintain important support zones or continue to face adjustment pressure.
