Gold Price Outlook: Can Gold Prices Surpass $2400/oz?

• Gold prices supported by rate cut expectations and central bank buying.
• Gold ETFs see positive flows, suggesting bullish momentum.
• Fed Chair Powell’s testimony and may cause short-term volatility but no direction.

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Gold prices found support at $2350 per ounce yesterday after a selloff erased Friday’s gains. On Friday, gold peaked at $2393 per ounce as the market assessed the impact of the US jobs report and adjusted their expectations for a rate cut.

Last week, a series of weak US economic data led to significant downward revisions of last month’s Non-Farm Payroll (NFP) figures. This prompted market participants to increase their bets on a 25 basis points rate cut in September, with the probability rising to 77% from 60% at the start of the week.

US Interest Rate Probabilities, July 9, 2024

Source: LSEG

As markets grapple with medium- and long-term direction, gold remains a central focus. Based on Friday’s response, could a rate cut be the key catalyst for gold to break through the $2400 per ounce mark and maintain levels above it?

Historically, gold prices tend to perform better when interest rates are low. Given the current rate environment it is surprising that a deeper price correction has not occurred since the beginning of the year. 

This does stoke belief that gold could be preparing for a move above the $2400/oz mark once the Federal Reserve begins cutting rate. 

Central Banks Gold Buying

Central banks had been on a buying spree this year which many had attributed to the elevated prices. This is unlikely to stop based on the recent World Gold Council (WGC) survey which revealed that Central Banks are expected to keep buying this year. Many analysts are attributing the drop in gold yesterday on news that the People’s Bank of China (PBoC) had not bought gold in June, the second successive month. I attribute the fall more to profit taking and repositioning ahead of the US CPI data later in the week but it will be worth keeping an eye on when the PBoC returns to the market.

The WGC survey suggests that central bank gold purchases will stay robust, with 29% of respondents planning to increase their gold reserves within the next 12 months—the highest percentage since the survey began in 2018.

Another encouraging sign for gold prices is seen in gold ETF holdings. Despite a decline throughout much of 2024, spot gold prices have reached new highs, and global ETF flows turned positive in May.

Gold ETF Flows in May After 12-Month Losing Streak

Source: WGC, ING Think

These factors indicate that the current bull run in gold may have plenty of momentum left.

US Inflation and Fed Chair Powell Testifies

Fed Chair Powell has started a two-day visit to Capitol Hill, where he will testify before Congress. The Fed Chair is expected to answer questions on the economy, rate cuts, and overall monetary policy. While this may cause short-term volatility, it is unlikely to provide direction for precious metals.

Chair Powell’s testimony will conclude tomorrow, just in time for markets to brace for Thursday’s US CPI data release. This month’s report is particularly significant given the recent spate of weak economic data from the US. A further decline in inflation would heighten expectations for a September rate cut.

For all market-moving economic releases and events (GMT-Time), see the MarketPulse Economic Calendar.  (click to enlarge)

Technical Analysis

The H4 gold chart below illustrates a staircase pattern with higher highs and higher lows since bottoming out around $2293/oz. Gold approached the ascending trendline yesterday and made another attempt today.

Counteracting a potential break lower is the golden cross pattern, which suggests bullish momentum. However, moving averages are lagging indicators, so the crossover might be reacting to last Friday’s upward impulse leg.

A break below the trendline would need to navigate the moving averages before the $2300 level becomes relevant. There are also intraday support areas between $2350 and $2300 that could attract buying pressure.

Support

• 2358
• 2350
• 2334 (200-day MA)

Resistance

• 2370
• 2379
• 2390
• 2400 (psychological level) 

Gold H4 Chart, July 9, 2024

Source: TradingView.com (click to enlarge)

Follow Zain on Twitter/X for Additional Market News and Insights @zvawda

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