Will jobs and inflation data confirm the Fed's stance on two more rate hikes? This is what gold price is watching
Gold is seeing its worst week since February as the Federal Reserve's outlook of two more rate hikes weighs on the precious metal. But some analysts don't see the macro picture supporting that hawkish view.
The gold market is down around $40 on the week, with August Comex gold futures last trading at $1,931.30 an ounce.
Federal Reserve Chair Jerome Powell remained fully committed to two more rate hikes during his testimonies before the U.S. Congress this week. And the gold space started to price out potential rate cuts at the end of this year.
Other central banks also joined Powell's hawkish stance. The Bank of England surprised by raising its main interest rate to 5% from 4.5% Thursday. Norway's central bank hiked by 50 basis points. And the Swiss National Bank raised rates to 1.75% from 1.5%.
Analysts pointed out that this renewed global hawkish stance could make the U.S. dollar a more attractive safe haven asset than gold.
"Gold prices have come under pressure following the June central bank decisions," said Standard Chartered precious metals analyst Suki Cooper. "The market is now expecting additional hikes, and macro headwinds have arisen as the USD has also strengthened again."
Gold's technical positioning is not looking good
On top of the macro picture, gold's technical position is not looking great after prices fell below their 100-day moving average of around $1,940 an ounce.
"Gold falling below its 100-day moving average is a signal that we still have lower to go," Gainesville Coins precious metals expert Everett Millman told Kitco News. "Aside from macro drivers pushing momentum against gold, the technicals are deteriorating."
The new resistance level is $1,940 an ounce, and support is at $1,900 and then $1,880, Millman added.
A lot of long positions also got out as rate cuts now seem off the table, said Phoenix Futures and Options LLC president Kevin Grady. "Gold is waiting to see the language from the Fed that they will back off. That is when bulls will come in," Grady told Kitco News.
ETF outflows have accelerated in June, and tactical positioning scaled back, Cooper pointed out.
"While we continue to believe there is an appetite for gold, price action is typically less supportive during a seasonally slow period for consumption," she said. "Net fund length was at its lowest – with the deepest net short positioning since 2018 – in September 2022; positioning is still relatively elevated compared to nine months ago, but overall investor interest is at its lowest since 2018."
This highlights a shift in sentiment, with summer known to be a seasonally slower period for demand, according to analysts.
Some view gold as close to a bottom at current levels. "The $1,900 to the downside is an important level to watch," TD Securities senior commodity strategist Daniel Ghali told Kitco News.
Can the Fed's hawkish view last?
In the next few weeks, the gold market will carefully monitor whether the macro data, especially labor and inflation reports, support the Fed's view of two more rate hikes.
"We think the data won't corroborate Fed's expectations to hike rates further," Ghali said Friday. "We see a good chance that the Fed concluded the hiking cycle last May."
The data to pay close attention to include jobless claims and employment reports, he added. "We expect a recession in the fourth quarter. And gold can rally towards $2,100 by early next year," Ghali noted.
Once the data starts to deteriorate, the market will price in a higher likelihood of cuts over the next 12 months. And since gold is a forward-looking financial asset, new investor flows will come in, supporting higher prices, the analyst explained.
It is reasonable to expect a pause until further notice, with options of hiking or cutting both on the table depending on the economic data, Millman added. Two more rate hikes are not "etched in stone like Powell has us believe," he said.
Also, it is historically uncommon for the Fed to raise rates after a pause. "After a pause, there has always been a cut. Even when Paul Volcker was the head of the Fed," Millman said.
Next week's data
Tuesday: U.S. durable goods orders, CB consumer confidence, new home sales,
Thursday: U.S. GDP Q1, jobless claims, pending home sales
Friday: U.S. PCE price index
By
Anna Golubova
For Kitco News
Tim Moseley