- Gold price regains momentum above $1900 despite increased odds of Fed rate hikes.
- US economic data underscores robust growth, pushing XAU/USD to test 200-day EMA.
- Treasury bond yields soar, underpinning projections of higher rates and potential headwinds for Gold demand.
Gold price recovers some ground after sliding below the $1900 figure for the first time since March 15, 2023, gaining about 0.09%. This recovery comes in response to upbeat economic data from the United States (US), which has increased speculations that the Federal Reserve (Fed) will proceed with additional rate hikes. The data also indicates a strong pace of growth, pushing XAU/USD to trade at $1909.65 after hitting a daily low of $1893.17.
US economic data signals more Fed tightening; XAU/USD bulls hang on
The US economic calendar reveals outstanding figures for the US economy. The Gross Domestic Product (GDP) for the first quarter has been upwardly revised from 1.3% to 2%, while jobs data reflects the robustness of the labor market. Initial Jobless Claims for the week ending June 24 came in at 239K, well below the estimated 265K, breaking a three-week streak of readings above the 260K mark.
The data confirms the good health of the US economy. Following these numbers, Gold traders, along with other market participants, have started to factor in the need for additional tightening by the US Federal Reserve (Fed), which is expected to increase rates by a quarter of a percentage point in July. The CME FedWatch Tool shows an 87% chance of a 0.25% hike, while US Treasury bond yields have reached levels not seen since March 15.
The US 10-year Treasury note yield has risen to 3.854%, a gain of 14.4 basis points, while US real yields, which pose a challenge for XAU/USD prices, are at 1.678%, their highest level since March 9.
Other data reveals that Pending Home Sales have plunged to a five-month low in May, coming in at -22.2% YoY, worse than April’s -20% contraction.
Earlier, the US Federal Reserve Chair Jerome Powell stated that the labor market remains tight, inflation is too high, and the Fed still has a “long way to go” before inflation reaches its 2% goal. Powell also mentioned that the majority of the Federal Reserve Open Market Committee (FOMC) expects “two or more” interest rate increases by the end of the year.
Analysts cited by Bloomberg commented, “Today’s data shows that rates will be higher for longer.” The 2-year US Treasury bond yield, which is most sensitive to monetary policy decisions, has surged to 4.893%. Money market futures for the November meeting indicate
Gold Price Forecast: XAU/USD Resilient despite Fed’s Rate Hike Speculations on Solid US Data
Introduction:
The gold market has been characterized by resilience and stability despite growing speculations about the US Federal Reserve’s interest rate hike and positive economic indicators out of the United States. This article aims to explore the current factors influencing the price of gold, forecast its future trajectory, and shed light on the reasons behind its resilience in the face of potential rate hikes and strong US economic data.
Factors Affecting Gold Price:
1. Rate Hike Speculations: Market sentiment has been heavily influenced by the possibility of the US Federal Reserve tapering its asset purchase program and raising interest rates. Historically, higher interest rates have negatively impacted gold’s appeal as a non-yielding asset.
2. Inflation Concerns: Persistent concerns over rising inflation have prompted investors to turn to gold as a hedge against diminishing purchasing power. Gold has traditionally performed well during inflationary periods due to its intrinsic value and the limited supply of the precious metal.
3. Safe-Haven Demand: Geopolitical tensions, trade disputes, and uncertainties surrounding the global economic recovery have increased the demand for safe-haven assets, including gold. Investors often flock to gold during times of uncertainty, seeking a store of value that is not subject to the volatility of other financial instruments.
4. Dollar Strength: Gold and the US dollar tend to have an inverse relationship, where a stronger dollar makes gold relatively more expensive for foreign investors. During periods of dollar strength, gold prices often experience downward pressure.
Resilience of Gold Prices:
Despite the aforementioned factors, the price of gold has shown remarkable resilience in recent months. Several key reasons underpin its ability to withstand the challenges posed by potential rate hikes and solid US economic data:
1. Technical Factors: Gold’s price resilience can be attributed to technical factors such as strong support levels and a well-established trading range. These technical indicators have attracted traders and investors who believe in the long-term value of gold, helping to stabilize its price.
2. Physical Demand: Gold’s physical demand, predominantly driven by jewelry, central banks, and investment purposes, continues to remain robust. Global gold jewelry demand has rebounded strongly, especially in emerging markets, offsetting any downward price pressure caused by other factors.
3. Diversification Benefits: Gold’s intrinsic diversification benefits make it an attractive investment option for portfolio managers. Its low correlation with other assets helps reduce overall portfolio volatility and enhances risk-adjusted returns, despite potential rate hikes.
4. Global Economic Uncertainties: Despite solid US economic data, uncertainties persist on a global level. Concerns about the COVID-19 pandemic, geopolitical tensions, and prolonged trade disputes have dampened market sentiment, further driving demand for gold as a safe-haven asset.
Forecast for Gold Prices:
Given the current market conditions and the factors discussed above, the forecast for gold prices remains positive, albeit with certain caveats:
1. Potential Dip on Rate Hike Speculations: If the US Federal Reserve decides to raise interest rates sooner than anticipated, gold prices may experience a short-term dip due to weakened demand. However, this would likely be a temporary setback, as long-term inflationary pressures and safe-haven demand will likely drive prices higher in the medium to long term.
2. Inflation Hedge and Safe-Haven Demand: Gold’s status as an inflation hedge and a safe-haven asset is expected to remain intact. As concerns over inflation persist and global uncertainties continue, gold’s appeal is likely to strengthen further, supporting its price growth.
3. Dollar Fluctuations: The US dollar’s fluctuations will continue to impact gold prices. Any significant strengthening of the dollar may lead to short-term price corrections, while a weakening dollar would likely boost gold prices.
Conclusion:
Despite growing speculations surrounding potential rate hikes and positive US economic data, gold prices have remained resilient. Factors such as strong technical indicators, robust physical demand, diversification benefits, and global uncertainties have all contributed to the stability of gold. While short-term fluctuations may occur, the long-term forecast for gold prices remains positive, owing to its intrinsic value, inflation hedging qualities, and status as a safe-haven asset. Investors and traders should closely monitor the interplay between these factors for informed decision-making in the gold market.