Gold Finds Stability as the U.S. Dollar Retreats: Market Update

Gold prices found stability earlier this week as the U.S. dollar continued to retreat. With market expectations pointing toward an interest rate pause from the Fed in September, the precious metal has continued lingering below critical $1,900-per-ounce lines as traders await more definitive answers. Strong U.S. data released last Thursday proved that the economy should not require another rate hike, meaning gold may finally lose some of the headwinds that have been pushing prices toward six-week lows.

According to the Commerce Department, U.S. retail sales increased by 0.7% last month. The jump may suggest early signs of economic expansion during 2023’s third quarter. According to a Reuters poll of economists, the forecasted retail sales figure for last month was just 0.4%.

“Another impressive retail sales report, which suggests the economy is not weakening, and that’s going to force the Fed to keep the prospect of more rate hikes on the table,” Edward Moya, a senior market analyst at OANDA, explained.

Most seem to disagree with Moya’s position on if the Fed will enact another hike. Given the latest CPI data showing cooling inflation rates, the odds of another rate hike in September dropped significantly. According to CME’s FedWatch Tool, there’s currently a 91% chance of the Federal Reserve leaving rates unchanged in September.

What will occur after September’s meeting will depend on how the economy responds. Most expect that the current rate will need to stay for a while as the Fed seems firm on its stance of reaching the target 2% inflation level, which we’re far from. July’s data showed rates hitting 3.2%.

“All members affirmed that they are strongly committed to returning inflation to their 2 percent objective,” July’s FOMC meeting minutes stated.

“Economic data out of the U.S. thus far has provided room for rates to be kept high for longer. We have the U.S. retail sales data yesterday pushing back against recession concerns and potentially keeping safe-haven flows at bay,” Yeap Jun Rong, a market strategist at IG, weighed in.

A few forecasts show rate cuts coming sometime in 2024, allowing gold to begin accelerating next year. The odds of an interest rate hike this November currently sit at 30%. A lot can change between now and November, so the marketplace predictions seem relatively mixed over the subject.

“The $1,900 per ounce is a key level for a lot of traders when they focus on gold. At times it can trade extremely technical, and we can see some key support around this level for gold prices,” Moya continued.

As gold prices dip below critical levels, a few traders are capitalizing on the opportunity to buy in while prices are low. Others want to know when the precious metal will strike above the famed $2,000-per-ounce line again.

According to analysts Heng Koon How, David Neuhauser, and Randy Smallwood, gold may reach well above $2,000 by early 2024. Heng Koon How, the head of markets strategy, global economics, and markets research at UOB, believes gold will hit $2,100 by the second quarter of 2024.

“Key driver in our positive outlook for gold is anticipated peak in Fed rate hiking cycle as well as upcoming topping out of U.S. Dollar strength,” How explained.

David Neuhauser and Randy Smallwood have even more bullish sentiment, with predictions of gold hitting $2,500 per ounce as soon as the end of 2024.

“My target is $2,500 by the end of 2024 … Much of this has to do with the fact that recessionary forces may take hold beginning later this year and gain steam in 2024,” David Neuhauser, the founder of Livermore Partners, explained. “2024 is when I see gold breaking out and reaching new highs and beyond.”

“I’m pretty confident that within a couple of years, we will see $2,500 gold,” Randy Smallwood, the CEO of Wheaton Precious Metals, weighed in. “Any type of recessionary move would be positive for gold.”

With the hope of interest rate cuts and recession fears looming in the future, gold has plenty of room to move up. In more recent terms, the U.S. dollar fell by 0.1%, making the precious metal more attractive for buyers using other currencies.

As the U.S. dollar continues retreating, gold may find more solid ground awaiting the next Fed meeting. Until then, traders can assess the incoming data to predict how the committee may respond during September’s highly anticipated meeting. As always, investors should consult their financial advisors before making any portfolio moves.

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