Gold’s explosive rally of the first quarter this year has dissipated and the gains in the next few months are likely to be modest.
Gold market support is likely to be maintained by positive fundamentals, according to experts.
Gains are likely to be limited, despite the expectation of significant US interest rate reductions.
The gold price had recovered the entire loss incurred following last week’s US Federal Reserve meeting. This was due to a Friday US employment report that came in significantly lower than expected.
July saw a smaller-than-anticipated increase in employment, with only 73,000 new jobs created, falling short of the Bloomberg survey’s expectation of roughly 100,000.
But that was not the biggest surprise. “The dramatic downturn of the two previous months was what really shocked me,” Thu Lannguyen said, Head of FX and Commodities Research at Commerzbank AG.
The US employment growth has slowed down significantly, and there are now 260,000 less jobs in the US than originally reported.
The rate at which employment has grown is similar to the growth observed in pandemics. Also, the unemployment rate rose.
Nguyen stated that “An interest-rate cut for September has been reinstated, after it was priced out following the Fed’s rather hawkish meeting.”
Haresh Meghani, FXstreet editor, stated:
After the Federal Reserve released the most recent US employment data that showed a dramatic deterioration of labor market conditions, traders increased their bets on rate reductions.
The rise of Gold
The gold price has now exceeded its pre-Fed levels. This is likely due to several factors.
The uncertainty increased when US President Donald Trump dismissed abruptly the director of the Bureau of Labor Statistics shortly after the publication of data on the labour market.
Trump accused BLS chief of manipulating data in an attempt to bring Republicans down and discredit himself.
Prior to this, US economic statistics were considered the benchmark for global data.
There is a growing concern about the reliability of data.
Nguyen continued, “After all any successors to the BLS position must be prepared for the same fate as they fail to report more positive statistics.”
The BLS also collects important price data that is essential to the Consumer Price Index.
Nguyen said:
The Fed’s most valuable data on the inflation rate and the employment market could be rendered less informative in future.
Investors may be faced with a reduced level of transparency about the US economy.
According to Nguyen, this could make the US less attractive to investors. This would in turn benefit gold.
Increased pressure on Fed is likely
As central banks are under increasing pressure to lower interest rates, gold is expected to rise.
Adriana Kugler, the Fed governor announced on Friday her resignation early from the Board.
Her departure was originally scheduled for January. Trump announced that he intends to nominate her successor in the next few days.
The extent to which Trump intends to influence the Fed could be revealed by his nominations.
Gold is expected to be in high demand due to increased geopolitical risk, since it’s a considered safe haven.
The ultimatum that Donald Trump issued to Russian President Vladimir Putin expires this week.
If Putin fails to achieve a ceasefire during the conflict in Ukraine, then sanctions will be applied to nations who buy Russian oil.
Trump escalated tensions by ordering the repositioning two nuclear subs after a heated exchange between him and former Russian president Medvedev.
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Nguyen noted:
Gold’s gains are limited despite all the arguments that it is a positive metal.
Gold is now over $100 less than the previous record price of $3.500 an ounce.
The technical breakout on Friday is in favor of gold bulls.
According to FXstreet, the price has surpassed $3,335 and shown sustained strength over the SMA of 100 periods on the 4-hour graph.
If prices fall to $3,365-$3,366 support level, a buying opportunity could arise. Further declines are likely to be limited in the area of $3,350-3,349.
The immediate barrier appears to be the high of Monday, which was around $3.385. This is before the important $3.400 mark.
Menghani predicts that gold prices will continue to increase, and the next major resistance level is expected around $3,434-3,435. This rise is due to continued demand.
Nguyen stated that “we continue to see the gold fundamentally supported, but the momentum, especially in the first-quarter, has diminished.”
It is evident that the gold price has traded in a “sideways fashion” since April, despite greatly increased expectations of US interest rate cuts.
As updates develop, the post Gold’s growth from Q1 slows; Will Fed’s hopes of rate reductions help prices to reach their peak? may be updated.
