With gold prices holding strong above the $1,950-per-ounce line for the first time in a few weeks, all eyes are fixated on the upcoming Federal Reserve monetary policy meeting scheduled for July 26. Whether or not an interest rate hike will occur remains up for debate, though the true hot topic here will be committee sentiment over how close we are to the end of the hiking cycle. Based on recent employment data and the easing inflation rates, many expect to see more positive remarks from committee members with the hope of inflation hikes ending around September, which means excellent news for gold.
It’s no surprise that this recent dip in inflation offered critical support to gold prices, allowing the precious metal to gain support above the $1,950 line yet again. Last week, gold experienced its most significant weekly gain since April, when it was coming off of its yearly high.
Meanwhile, the U.S. dollar continues declining, hitting an over one-year low against major currencies that only make it look weaker. The U.S. dollar index dropped to 99.84 in early Asia trading after hitting its lowest point last Friday since April 2022. All factors considered, analysts currently expect the Bank of England and European Central Bank to continue their rate-hiking cycles for a bit longer than the U.S.
The next big move on everyone’s minds is the upcoming Federal Reserve meeting on July 26. The Fed’s gathering will reveal vital insights regarding the U.S. central bank’s sentiment toward future rate-hiking policies and overall economic conditions. While many feel that we’re nearing the end of the rate-hiking cycle, the general market consensus still leans toward an additional hike this coming month, though only time can tell.
A simple indication of a future pause in the hiking cycle will likely support gold prices. During last month’s meeting, most members revealed their positioning on the subject, and the majority seemed to agree that the United States was nearing the end of the long battle.
During June, the meeting ended with a rate hike pause to assess conditions further. “Most of those participants observed that leaving the target range unchanged at this meeting would allow them more time to assess the economy’s progress,” the minutes stated. While “some participants” may have urged for a rate hike last month, “almost all participants judged it appropriate or acceptable to maintain” the current rate.
After June’s pause and the nearly unanimous decision to leave rates unchanged, many are suspecting similar opinions during the upcoming meeting. Gold typically lulls during periods of high inflation, so when the rate-hiking cycle finally ceases, gold can hopefully rebound back above the $2,000 line yet again.
“With inflation backing off, the anticipation of further rate hikes has slightly declined, helping gold this week. But, prices are lower today as yields are ticking up,” Daniel Pavilonis, the senior market strategist at RJO Futures, explained.
“Prices are going to be range-bound near term. If the Fed begins to say we don’t need to raise rates any further, we can see gold rise further,” Pavilonis continued.
The recent positive labor reports show no reason for aggressive strategies from the Federal Reserve.
The U.S. Bureau of Labor Statistics recently released the Consumer Price Index figure for last month, coming in at 3%, one-tenth below market estimates. In May, the CPI rate was 4%, significantly above June’s figure. The labor report’s core gauge figure also surprised market expectations at 4.8% versus the estimated 5%. Evidently, the Fed’s actions from earlier this year may actually be paying off now, though they must tread lightly to avoid an overcorrection.
Gold closed July 18 at $1,982.60 per ounce, about $40 above where it sat this time last month. Given last week’s impressive gains, we may be on track to hit the $2,000 line relatively soon, especially if the Federal Reserve meeting plays out in gold’s favor. The precious metal has increased by 1.7% in the last month and 2.96% in the last six months, keeping it far above its start-of-year expectations.
For now, traders can keep their eyes locked on the upcoming Fed meeting for further predictions on gold’s future. Rumors of rate-hike pauses will likely push the precious metal closer to the $2,000-per-ounce level, though we will see how the meeting plays out. Gold still carries excellent demand support from central banks around the globe, regardless of rate hikes on the U.S. front.
As always, investors should consult their advisors before making any portfolio decisions.