The latest market trends indicate that the price of gold is nearing its lowest levels in three months, highlighting the importance of Lagarde and Powell’s speeches for its future movement. Gold remains under pressure after better-than-expected economic data.
On Wednesday, the price of gold remained below the $1,920 per ounce mark, reaching its lowest levels in three months. This follows the release of positive U.S. economic news on Tuesday, which favors an interest rate hike by the Federal Reserve. Recent data revealed an increase in U.S. consumer confidence to its highest level in nearly a year and a half in June, while business spending, durable goods orders, and home sales maintained their levels in May.
Last week, Federal Reserve Chair Jerome Powell announced that further rate hikes were likely due to persistent inflation. Additionally, the European Central Bank has also predicted high inflation in the Eurozone, further strengthening the case for monetary policy tightening.
In this context, the prospect of liquidity reduction is expected to exert pressure on the precious metal, especially if the probability of another Fed rate hike, currently estimated at 77% for July, continues to rise. Investors are now eagerly awaiting the participation of Jerome Powell and Christine Lagarde at the Central Bank Forum organized by the ECB on Wednesday, hoping to gain new insights into the likely direction of interest rates. Therefore, the price of gold could continue its decline towards $1,800.
Short-term technical perspectives and influencing factors.
From a technical standpoint, the outlook for the price of gold has turned bearish in the short term since its downward break below the range of $1,930 to $1,985 last week. This break follows a downtrend break from a long-term upward trend in May, further reinforcing the idea of a retracement. In the coming weeks, gold could retest its March low of $1,800 if the Fed and other central banks continue to tighten their monetary policy and if upcoming economic releases exceed expectations.
However, these bearish perspectives could be invalidated in the event of a rebound above $1,930, which could occur with negative employment news or a larger-than-expected slowdown in inflation. Among other factors that could influence the price of gold in the coming days, the weekly jobless claims in the United States on Thursday and the U.S. PCE inflation on Friday are also important for investors.
The historical record for gold is still possible.
The current base for the price of gold appears to be stabilizing around $1,900, with an average of $1,933 per ounce since the beginning of the year. It has maintained a level above $1,900 for a longer period than ever before. Despite the strength of the stock market and the recent strength of the U.S. dollar, gold shows some resilience. Outflows from gold bullion exchange-traded products have decreased this year, but net inflows, albeit modest, have led to a 0.38% increase in holdings since the beginning of the year.
That being said, gold bullion holdings in exchange-traded products have declined by 8% from their March 2022 level and 13% from their August 2020 level when gold reached its all-time high. It is possible that a decision or pause by the Fed this year could be the next catalyst for gold, unleashing investment demand that could drive its price up. The historical record of $2,075 per ounce seems entirely achievable, given the favorable long-term macroeconomic context.