Gold price forecast amidst dollar strength

29 Temmuz 2024

Today’s market analysis on behalf of Rania Gule Market Analyst at XS.com

Gold price forecast amidst dollar strength and economic uncertainty

Gold prices modestly declined in Monday’s trading, currently trading at $2387, influenced by the strength of the US dollar after facing resistance around $2400 earlier in the day. News reports suggesting that the conflict in the Middle East may extend to Lebanon have kept investor concerns high, providing a competitive edge for the US dollar as a haven.

Geopolitical risks overshadow key events of the week, particularly the Federal Reserve meeting scheduled for Wednesday. Data from the June Personal Consumption Expenditures (PCE) index, released on Friday, showed that inflation remains steady, albeit close to the central bank’s 2% target. Investors hope the easing cycle will commence in September, with the Federal Reserve potentially giving hints about this direction after this week’s meeting.

June’s US job openings data and the Conference Board Consumer Confidence Index for July, set to be released on Tuesday, are expected to show a moderate decline, further increasing expectations for a rate cut in September.

From my perspective, the increasing geopolitical concerns, with Israel considering an attack on Lebanon, support the US dollar as a haven, exerting pressure on gold prices and weakening momentum in the near and medium term.

At the same time, yields on benchmark 10-year US Treasury bonds have declined due to growing hopes that the Federal Reserve will start cutting interest rates in September, though this possibility is inconsistent with current events and data in my opinion.

However, I believe that with a 95% probability that the Federal Reserve will keep interest rates unchanged this Wednesday and a 100% probability of a rate cut in September, the geopolitical risks arising from conflicts in the Middle East also support gold prices as a haven, potentially causing some volatile price fluctuations.

Nevertheless, I fundamentally think that the upside potential remains limited in the wake of the optimistic sentiment in global stock markets, which tends to undermine the demand for the traditional haven of gold, giving the US dollar a haven advantage.

I also believe that traders prefer to wait for the outcome of the two-day Federal Open Market Committee (FOMC) meeting next Wednesday and key US macroeconomic data due in early August, including the Nonfarm Payrolls (NFP) report, which could provide new directional momentum for the dollar-priced commodity.

 

Zaid Barem / YMM