Earlier this week, gold prices’ near-$2,000 movement waned as the Federal Reserve thought interest rates would be near their peak. Analysts are now preparing to evaluate Fed Chairman Jerome Powell’s comments after the 25 basis point increase expected on Wednesday.
Gold prices loosen as dollar strengthens
According to OANDA senior market analyst Edward Moya, the Bank of Japan (BoJ) will maintain its ultra-loose monetary policy next week. Thus, the yield curve will signal that it sees no urgency in adjusting the control program. Moya says the gold market then reacted to the rise in the US dollar. According to the CME FedWatch Tool, a 25 basis point increase is priced at almost 100% probability. Moya comments:
Gold prices are easing as the dollar strengthens after reports that the BOJ is inclined to keep its yield curve control strategy. The dollar is making a small wave here. That puts gold’s third weekly gain at risk.
Gold prices seem to consolidate in this range
There is also a risk of a deeper pullback in gold next week. But this largely depends on Powell’s rhetoric. Moya makes the following assessment:
There is a lot of news for gold investors to follow next week. If the Fed keeps the option of further tightening on the table and the gains mostly continue to show that the US economy’s resilience remains, this could support a deeper pullback. It looks like gold will consolidate in the $1,940 to $1,980 range before central bank fireworks ignite next week.
Critical week for gold: Eyes on Fed, ECB and BOJ
In the coming week, markets will try to digest the monetary policy statements of the Federal Reserve, the European Central Bank and the Bank of Japan. This week, Powell promised at least two more rate hikes this year. However, there was much optimism that the Fed was close to completing its tightening cycle. Paul Ashworth, North America chief economist at Capital Economics, comments:
It is almost certain that the Fed will raise the policy rate by 25bps at next week’s FOMC meeting, to between 5.25% and 5.50%. However, we are increasingly confident that this will be the peak.
Expectations are for the ECB to raise rates by 25 basis points on Thursday. Analysts are closely following the comments of ECB President Christine Lagarde. Meanwhile, markets expect the BOJ to keep rates steady and not change yield curve control. “It looks like the other major central banks are going to tighten while the BOJ remains stable,” Moya said. This will likely continue to drive interest rate spread trading,” he says.
Fed will cut interest rates aggressively next year!
Behind this optimism was June inflation data, which showed that inflation in the US fell sharply. cryptocoin.com As you follow, the US CPI increased by 3% last month. Thus, it reached its slowest pace in more than two years. The core CPI measure, which excludes volatile food and energy prices, rose 4.8%, making its slowest progress since 2021. Ashworth commented on Friday:
Despite officials’ ‘longer higher’ rhetoric, a more pronounced drop in core inflation and easing in labor market conditions in the second half of this year will eventually convince the Fed to turn around and cut rates aggressively next year.
Is there a pause on the horizon for gold prices?
Analysts will pay close attention to any changes in inflation rhetoric and how strongly the Fed continues its tightening trend in next week’s FOMC statement. “President Jerome Powell could go so far as to stress at his press conference that additional rate hikes are still needed this year. But the markets are not convinced. He also generally agrees with our view that the Fed has almost completed tightening,” he says.
Before the Fed signals the end of rate hikes, there will be a period of uncertainty and data addiction, says Ryan McKay, senior commodity strategist at TD Securities. And for gold prices, that likely means a pause before the next rise. In a statement on Friday, McKay underlines:
Speculators have been reluctant to completely buy into gold’s bullish rhetoric. Indeed, discretionary traders and investors have stayed on the sidelines for now. However, this also offers additional upside potential if Fed expectations turn more dovish and this group starts to disperse their dry powder.
next week’s data agenda
- Tuesday:US CB consumer confidence.
- Wednesday:Fed rate decision, US new home sales.
- Thursday:ECB decision, US jobless claims, US durable goods orders, US GDP Q2, US pending home sales.
- Friday:BOJ decision, US PCE Price Index.
